Tag Archives: Property Investment

Oct 27 2011

The market – catch 22

It doesn’t help a fragile market to have confidence wobbles. Talking a market down is easy – and worryingly, in my view, we have become so used to bad news that is almost habit forming? We have forgotten the good times!

Some of the work I do is valuing property assets. It is not always easy at the moment to pin down values – especially when the evidence we use is rather thin! Valuers are always looking backwards, we rely on deals done. The valuation methods don’t use predictions of where a market will be! That’s a sure fire way to get sued for professional negligence.

Back in 2008 we invoked a clause in our valuations which is lovingly know as Guidance Note 5 – Valuing Uncertainty. It effectively puts the recipient of a report on notice that the valuation provided has a bit of a warning flag attached. We may not have been able to be as certain as we would like – usually due to the lack of comparable evidence.

This clause was gradually dropped at the market returned to a more stable state – even if the number of transactions was reduced.

But last week we were alerted to the fact that some of the National firms were starting to use the clause again – predominantly where they were involved in International (notably European) work. I guess they can see some of their work being impacted by the current financial mess in Europe.

We haven’t invoked the clause yet, but is remains under review.

You can see that this would not be a great thing to happen. The market doesn’t need a knock at this time. But we may have no alternative if things don’t get better!

Jun 15 2011

The property market – where next?

In the last couple of months I have been feeling a little bit better about the state of the market. Whilst I wouldn’t suggest that the market is booming (it isn’t) – but it seems to be a bit better than it has been. Enquiries are up; some stock has sold. There seems to be a little more interest in property.

My monthly round up of the market arrived last week from PropertyData. May was a good month with the average yield down at 5.67% – the lowest it has been for some time (low yields = higher prices!). But the longer term view shows a market that is resolutely flat – in fact the average property yield over the last three, six and twelve months is shown as 6.08, 6.08 and 6.09% respectively. It doesn’t get flatter than that.

The main issue remains Bank lending. Although there is some, it is the exception rather than the rule – and much of the lending is re-financing rather than new lending. There is certainly no speculative lending going on. If you have an idea, but no end user, you probably can’t make the finance model work…

We have struggled for nearly three years now. 2007 saw a very frothy market which needed correction. It did correct and I can’t help wondering if this flat-lining we are seeing is going to be with us for a while? We are still seeing some of the Comprehensive Spending Review cuts. Money is cheap but is far from plentiful. There is an air of caution locally. Perhaps we are going to have to grow used to a lower level of transactions – we are at about 50% of the levels seen in 2007.

Although this makes a valuers job easier, it does nothing for the vacant sites around the town…

Jan 13 2011

2010 – a commercial property comeback

The most awaited Property Investor Bulletin from Property Data has just arrived – drawing together the commercial property deals from 2010. It makes interesting reading.

There was a recovery of sorts. More property was transacted than in 2008 and 2009. Around £33bn of property was sold – against £25bn in 2009 and £24bn in 2008.

However we are still some way off the heady days of 2006/7 when £61bn and £55bn of property was sold!

And the focus of the transactions was the Central London office market – around a third of all of the deals were there. Only 10% were in “rest of UK office”. The North-South divide is quite visible.

We also saw a return of the Institutional investors in 2010 – they bought £10bn of investment and sold just £5bn.

In terms of the average yields (which is a very crude measure) the year returned an average net initial yield* of 6.25% – and this rate of return has increased very slightly over the last six months (it was 6.11% back in the summer of 2010).

So perhaps we should take comfort in the improvement over the preceding two years and be cautiously optimistic about the future? Maybe.

As I blogged about a short time ago – the lack of available cash is the real constraint to the market returning to anywhere near the previous levels seen. This is keeping people out of the market. There is also a lack of confidence about growth prospects.

Some commentary from the Institutions in the last few weeks has suggested they see the market as being worth looking at – primarily where prices have dropped and there are opportunities for them to ‘add value’. This will make 2011 an interesting year!

*We use net initial yield as a very simple comparable – to calculate it you divide the passing rent (these are investments) by the purchase price and show this as a percentage. We then deduct the costs of acquisition – legal, surveying and Stamp Duty costs. This gives you a relatively simple rate of return. It doesn’t take account of any reversionary rents (which may increase or go down!)

Nov 10 2010

A mixed market?

My Property Investor bulletin arrived at the weekend and it provides a really interesting barometer of the state of the market. Well, part of the market!

Somewhat to my surprise the average yield of investments sold and bought in the last month has hardened and stands at 5.72%. The last three months figure was 6.03%, six months 6.07% and 12 months 6.40%. The lower the yield the higher the value.

These are ‘average’ initial yields which means that they only represent the capital value and rent passing at the date of sale – you just divide one into the other. But they don’t take account of any reversionary value – in other words what the rent might go to after a review or lease renewal. Having said that rents generally are fairly flat!

But there is another picture. These are pretty much the Institutional prime products that are being reported. There are not many ‘local’ or ‘secondary’ transactions reported. The smallest transaction was £550,000 and the largest a West End office at £150m!

So what is the state of the local market? My view is that is is fairly stagnant. The market is slow and completed transactions few and far between. Deals are difficult to conclude.

Bank lending remains a massive challenge. Tenants in the secondary market are still finding life hard – there are few SME’s having a bumper time.

We have a few pent up issues still – the Comprehensive Spending Review might push 500,000 people onto the dole. The Empty Property Rate hurts landlords when property is vacant. All of this points to a ‘tenants market’. And a weak one at that. This only really points to a suggestion that secondary values might fall further still.

2011 remains something of an unknown – but I am still waiting to meet a property professional who is upbeat! That’s the realist in me; the perpetual optimist says it will be alright… (I think).

Sep 14 2010

The property market – mixed messages

Last week I wrote a report for a client in which I expressed a concern that we could be heading for a “perfect storm” in the property market. It doesn’t suit my business to talk the market down, but I have some concerns when people are starting to rely on sales for further investment.

In essence my concern is that we have not started on the Public Sector cuts yet and these are likely to increase unemployment. Unemployment generally has a negative effect on the property market as confidence wanes. Then in January VAT increases to 20% as one of the fiscal measures to reduce our deficit starts to bite. Inflation is currently above the Governments target and one short sharp shock way of dealing with this is to increase the base rate. If this happens the cost of borrowing increases hitting the residential market with a second blow.

These blows to the residential market generally then hit the commercial market. I hope they don’t.

And I also spoke to one of my friends who is a Banker. They are starting to look much closer at their customers – and the view is that some are likely to have the plug pulled shortly…

Against this rather gloomy picture my monthly Property Investor Bulletin arrived from PropertyData. Last month I blogged about it here.

Volumes of transaction continue to perform well against 2009 – with £18.3bn of property having been transacted as against £12.8bn in the same period last year. But we are still at about 40% of the 2007 figures!

Last month the average yield was 6.44% – but has crept up again to 6.00% this month. There were 72 deals in the last month.

Property was more expensive when compared to the 3,6 and 12 month comparable figures (which were 6.04, 6.25 and 6.61% respectively).

And in the last month there was a net investment in the property sector by the major Institutions – they sold £266m of property and bought £588m.

So, it’s a very mixed message – and I really do hope I am wrong about the black clouds on the horizon…

Aug 12 2010

State of the investment market

I blogged earlier this week about the latest news on commercial property lending. It’s not a pretty picture.

My copy of the Property Investors Bulletin arrived last week and this is a great barometer of the market. This for the period up to 31st July 2010 – and there is better news in part.

Firstly, the volume of transactions is up on the equivalent period in 2009 – £16.4bn against £10.8bn. But we are still some way off 2007 figures when we had £39bn of deals.

85 property deals were reported last month – and the average yield is now 6.43%. This has slipped very slightly from the 3 month average of 6.22%. So property has got a little bit cheaper.

I am also a member of the Investment Property Forum and they have issued their consensus forecast recently. The general prognosis is that property will recover well in 2010, dip again in 2011 and pick up in 2012.

I think there is concern about the employment market – this has a direct impact on consumer spending. If consumers don’t spend the property market gets hit – especially in the high value retail sector! Potentially unemployment could hit 3m – especially as the public sector cuts take effect.

Although the interest rates remains low, this won’t go on forever. Inflation is considerably above the Government target and there is a cure – in the form of increasing the interest rate. This could hurt the recovery. Inflation has historically been quite good for property, but I am not sure that this is the case now.

It’s not in my interest to talk the property market down, but I think it remains in quite a fragile state and if someone sneezes there could be a cold epidemic….

Jun 10 2010

Agency – the state of the market

Last weekend Property Week published it’s annual “State of the Agents” survey. And the headlines?

* More than £150m has been wiped off the top 57 firms turnover last year (it is £400m lower than in 2008)
* That is a 5.6% drop in turnover overall
* Around 6% of the entire workforce have been lost – equating to approximately 1,400 jobs.

Not letting anytime soon? Trinity Square Nottingham

My firm lie at 46th in the table – with a turnover of £3.45m – down 19% on 2008. However, our profitability remained good as we took cost cutting measures in late 2008. Sadly, this did include redundancies.

We fared better in the table of turnover per fee earner – at 25th in the UK – £143,500 per fee earner.

Some of the quotes made by other firms do reflect what is currently happening across the industry:

“Things are better than they were, but we still expect tough times ahead”

“We still haven’t seen real lending happen again and deals are taking a lot longer to happen”

“Although we have been doing more professional work there is fierce competition on fees”

“Having a broad spread of business has been helpful”

My take is that we have done well in a difficult marketplace. We don’t have a residential agency arm and have no real desire to do so. We have added Building Surveying to our armoury and this has been a huge success – bearing out the principle that ‘professional’ work is preferable at the moment to agency work. In fact we are looking for another building surveyor. Our agency teams are seeing some glimmer of life in the market, but as one commentator said – deals are hard to do. There is some evidence as I blogged about here of some sectors doing well.

I think 2010 will remain difficult, but it should be better than 2009…

May 28 2010

Invest in Nottingham – part two!

Yesterday I went to the Invest in Nottingham day – this time actually back home! It makes a change from MIPIM and London.

The Market Square - part of the walking tour

My day started at the new NTU conference centre – where lunch was served! Then I wandered off into town with Nigel Turpin, one of the towns planners (and prolific cyclist!). The walk around the town was interesting – and I learned things about my home town! We took in NTU, Theatre Square, The Market Square, The Council House (with a tea stop with the Sheriff and the Mayor!), The Lace Market, Broad Marsh and finally back to Loxley House.

It was interesting to hear Nigel’s take on some of the Planning issues – and it was good to have some of the subtle design features pointed out. These included the de-cluttering of the City’s streets and the incorporation of the tram stops into the pavements. We also had a lively group who were questioning of some of the Planning decisions!

Then we went off to Loxley House – Nottingham City Council’s new home. Various talks were given – including by the new Director of Planning Simon Smales, Steve Wood from Westfield (owners of Broad Marsh) and Chris Deas from NET. I always have a chat with Chris – his dad was my first boss at Home Brewery in 1979!

I also had a look around Jane Todd‘s (CEO of the City) office … it’s open plan in the thick of it!

It was a busy day, very well attended and a positive look at Nottingham. It was good to see so many of Nottingham’s professional brethren out and ‘selling’ the City – alongside the dedicated team at Invest in Nottingham!

We once again proved that we are the friendliest people in the world – probably!

May 14 2010

A mini property boom ahead?

One of the features of the newly formed Coalition Government is likely to be a hike in Capital Gains Tax. There are suggestions that it may move to the marginal rate of tax- so in some cases it could be 50%.

Commercial property might flood the market?


There is currently a flat rate of 18%.

There is no indication when this tax rise might take place, but it brings matters into sharp focus -especially in the property industry!

By way of real examples, if you had a property worth £1.5m today and had purchased it for £300,000, your taxable gain would be £1.2m – your tax bill (ignoring your allowance) = £216,000.

If the rate went to 40%, your new tax bill would be £480,000! This is quite a significant lump of tax to swallow!

Or to put it another way, you would need to sell at £1.95m to stand still. I wasn’t aware that properties were forecast to rise by 30% anytime soon!

So I think we might expect some people who have owned property for a long time to be seriously thinking about disposal and realising the asset. I guess the Politicians think this is a palatable tax as it only really affects investors – and they can surely afford to lose this sort of money? After all they are sat on a gain! Of course those likely to be paying 50% tax will be much worse off.

This will be interesting times for those with property assets and I wonder if we might see a rush of transactions to try and beat the rise? Unless of course it is introduced as an emergency measure and takes effect ‘immediately’…that could be in seven weeks time.

Interesting times!

Apr 22 2010

Where would you put a billion euros?

I saw a client in London last week – for obvious reasons I can’t identify him.

The City of London - heart of the commercial world

He is a fund manager of a large London based investment fund and he has a billion euros to spend – on property! This is new money, placed with him by wealthy individuals – the entry level is around 250,000euros.

Although there are no guarantees on return, they will try to out perform the IPD index – a property index that is published and is the benchmark for the commercial investment property market. If you can beat it – you can shout about it!

Obviously the problem in having so much money to spend is where you place it. It needs to have a balance of safety and of some risk – to give a satisfactory return. I had an interesting discussion – a number of the guys running the fund are looking at Europe – notably Poland. The reason for the latter is that the GDP in Poland is on the up. And if the economy is going well, then property should be following.

But the fund manager was explaining that the problem with European investments is that the markets there are less sophisticated and making money (other than by a general movement in the market) is difficult. Obviously if the whole of a property market is moving up, it is difficult to lose money.

But the real game for the funds is to out perform the IPD – and to do this you need something more than a general shift in the market. You need to be able to add value. Here in the UK there are opportunities to do this by a number of ways – re-gearing leases, negotiating new terms or enforcing terms.

Part of what I do is to find solutions in commercial property problems. And, as the saying goes, there’s no such thing as a problem – just an opportunity.

Often these opportunities can be win:win situations for owners and occupiers – they just need to be found.

The conversation did remind me that we do have a simple yet sophisticated marketplace in commercial property here in the UK. And those that can find the solutions can make money – and easily beat an averaged index!