The global economy is currently front-page news and this tends to happen in periods of heightened uncertainty and risk, which influences everything from bond yields to interest rates and consumer confidence. All of these factors also have significant implications for the commercial retail property market.
Uncertainty and volatility are elements that we’ve learned to live with in recent years, and the key aspect to ensuring that the risk and actual return can be assessed from an investment, is correct market and property information. The good news is that, across the Thames Valley, there are discernable positive trends and reasons for optimism for well-informed and adaptable investors.
Rental Values
In many situations the rebasing of rent to align with the market has already taken place.
Rental values have been growing steadily for High Street properties in recent months (although not in all locations), and shopping centre rental values also seem to be turning positive after a sustained decline, so the trend for rental values is likely to be upward over the mid to longer term.
Evaluating what the passing rent on a let investment equates to in terms of a net Zone A, requires accurate measurement of the property to determine the ITZA and therefore the net Zone A, and then to compare that to the market rent. The detailed terms of the lease and any matters relating to the building which might affect value or lettability, also need to be closely reviewed.
Occupier demand is reasonably strong but this demand is, as always, highly dependent on location and the size, configuration and condition of the property, so the ‘reletting’ potential of a let investment (in the event that the current tenant defaults) needs to also be carefully considered.
Flexibility
If the investment being considered is currently vacant, then flexibility is critical in the current market to secure a tenant. Our usual advice is to ensure that the property is offered in a ‘white-box’ condition so that the space is ready to receive a new tenants bespoke fit out – this opens the market to as wide an audience as possible. Certain sectors continue to grow with no discernable evidence of any contraction in demand – this sector is F&B (food and beverage) however, not all units are physically suitable for such a use.
Sustainability
Cost pressures on retail occupiers are likely to remain critical. These pressures include a reduction in business rates relief; N.I. minimum wage and cost of sales.
The overall mood is one of cautious optimism – retail property in the Thames Valley can represent a good investment opportunity, but it requires a well-informed approach.
So the key ‘tip’ is to take advice from an expert in the sector and the location being considered.
For more information contact Fiona Brownfoot MRICS, Director of Retail & Leisure, Hicks Baker: 07770 470214 f.brownfoot@hicksbaker.co.uk
