We explore how landlords are taking advantage of the changing markets, both commercially and residentially
More than six in ten commercial landlords are reportedly struggling to attract prospective tenants to fill their office spaces under conventional leasing terms. The stark changes in working habits prompted by the Covid-19 pandemic have pushed businesses, both large and small, to re-evaluate their overheads and daily needs. Long leases and inflexible terms do not lend themselves well to the notion of 'pivoting'. Pivoting is a term we have all become familiar with, describing the need to react to the changing world in order to keep moving. Many companies restructured their staff forces, their business models, but the most common change was in working environments.
Buildings offering flexible commitments such as short-term leases, one month notice periods and the prospect of scalability, however, are flourishing. Business owners have learned a valuable lesson, and many will do all they can to circumvent being caught short again by situations out of their control.
Owners of more traditional commercial office space are having to make important decisions; pivot into a world of variable leasing opportunities, void of the long-term financial commitments many an empire was built upon; or face extended vacant periods, rental defaults, and a very uncertain future.
The introduction of Permitted Development Rights and the Government's National Planning Policy Framework has made the process of transforming unused commercial space into residential units easier than ever. The elimination of much of the red tape and bureaucracy surrounding the planning of such projects is designed to heavily contribute to the fulfilment of the government's housing targets. Amrit Singh, HULT Private Capital's real estate specialist, said "the newfound ease in the conversion of commercial premises to residential dwellings has provided a unique opportunity for investors. The foundations of former office buildings tend to lend themselves well to the transition as the utilities are already in situ, dramatically reducing typical build times; and the town centre locations are often unmatched. For this reason, it's unsurprising that we are learning institutions are incorporating such plans into their portfolios for the year ahead."
According to CBRE, institutional investors including major banks and property funds plunged a record amount of cash into the UK's rental market in 2021. Investors reportedly pumped Pound 4.1bn into the build-to-rent rector, a model quickly becoming the UK's fast-growing area of development. 2022 is hotly anticipated to deliver more of the same. With the Stamp-Duty holiday long over, and higher outgoings caused by inflation, many people have tighter budgets than ever meaning there has been an upsurge in rental demand.
HULT's Amrit Singh continued, "Interestingly, according to the latest RICs Residential Market Survey (Royal Institute for Chartered Surveyors), the North-West of England has seen the greatest demand on the rental front, followed closely in second by London, but demand is still most definitely outstripping supply nationally and investors can make a real difference, in turn seeing highly favourable returns. Our own Prime Central London Property Fund has grown in popularity with our clients, with many increasing their leverage to take advantage of the strong returns we've been seeing. It's a great time to hold bricks and mortar!"
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