Our Winter newsletter is now published and available to download below.
This summarises the events of 2016 for investors and contacts and shares our views on where we see opportunity during 2017….
Rougemont is in the news today with two articles on the recent purchase of Sandgate House on behalf of a private client…
The Property Week article is here (subscribers only I’m afraid)
The Newcastle Chronicle article is available to all here
Photo of Sandgate House on Newcastle waterfront bought by Rougemont Estates on behalf of a private client.
Rougemont is pleased to confirm the acquisition of a trophy, Grade A office building on a prime water front position on Newcastle’s Quayside, one of the city centre’s principal office locations.
Sandgate House was bought by a private client for £10.5m and is let on a recently renewed 15 year lease to established law firm, Ward Hadaway Solicitors, as their headquarters.
We are delighted to confirm the completion of our biggest syndicate to date with the Marshall Elland Syndicate’s purchase of Landscape House in Elland, West Yorkshire for £8.5m.
The Property is a modern three storey 32,510 sqft, Grade A headquarters on a secure self-contained site built specifically for Marshalls Plc in 2003. The Property is let on a full repairing and insuring lease to Marshalls for another 21 years.
The syndicate income income return will be 7.85% distributed quarterly in advance.
Rougemont is delighted to confirm the £800,000 purchase of a modern 9,361 sq. ft. Royal Mail sorting centre on a 0.67acre site on the Thirsk Industrial Estate.
The purchase, by Rougemont’s Royal Mail Thirsk Syndicate, provides investors an opportunity to take advantage of the tenant’s recent operational commitment to the property which will likely see the lease extended by a further 10/15 years.
In addition, should a modest increase in rent of c.£5,000 per annum (£6.00 per sq ft) be achieved this will increase investors income return to 7.15% per annum, plus enhance the Syndicates capital value.
Rougemont completed the purchase of the Royal Mail Sorting Centre in Newport for £1.7m.
A modern 21,713 sq. ft. sorting centre is situated in Newport City Centre, next to the Central Railway Station and Royal Mail recently installed a full automated sorting line within the warehouse and decided to extend their lease agreement on the building. The new extended lease expires in August 2030, with a tenant’s break option in August 2025.
The Royal Mail Newport Syndicate will benefit from a 7.00% p.a. Annual Return, distributed quarterly in advance, with a guaranteed upwards only rent review linked to the increase in the Retail Price Index in 2020.
We are delighted to welcome a new member to our team. Annelies Illingworth MRICS joins as Asset Manager for Harlow Property Management.
Annelies assists James Craven with the day-to-day management of Rougemont’s syndicated property portfolio as well as managing the growing number of private client investment ownerships.
There has been a lot of talk in recent months about a looming commercial property crash and horror story headlines like “London bubble set to burst” but, in reality, these scaremongering tales are unfounded and premature.
Commercial property investment continues to be one of the safe havens for investor cash and the latest report from CoStar, a leading commercial property research organisation, shows that the appetite for these assets continues to grow.
The UK Commercial Property Investment Review Q2 2015 shows that we are on track for another record year of property investment and both the capital and the regions are continuing to be hugely attractive destinations for investors both at home and overseas.
In this latest blog I consider some of the findings of the CoStar report and consider what lies ahead.
There’s some fantastic insights in this video from CoStar, but perhaps the most important message is by founding partner of GM Real Estate Tony McCurley who says the UK is “on everyone’s shopping list”.
London remains the top global city for investment while the whole of the UK was the most active investment market in the world after the US over the past 12 months. We’ve seen another phenomenal year with £73.6bn poured into commercial property and it isn’t showing any signs of slowing down.
We saw a total of £16.8bn invested in the UK in Q2 of this year, which was up 8% on the previous year, and £6.5bn of that money came from foreign investors, an incredible 44% increase on 2014.
Despite fears that falling yields in an overheated London market had seen it pass its peak, the research showed that the capital bounced back with investment surging 61% quarter-on-quarter and attracted £8.7bn in investment, up 46% on last year.
The UK regions also remain a hugely popular destination for investors as they continue to deliver the best yields and rental growth. For example, investment in the North East was up by 131% on the five-year quarterly average, with £308m invested in commercial property.
The UK remains one of the most attractive investment destinations for a number of reasons. The main reason is the continuing strength of the economy and its fast growth. However, traditional draws like the market transparency and political stability have always provided a high degree of comfort for investors.
When you couple this with the potential for further growth in the regions and the continuing strength of the capital, it makes the UK an obvious choice.
Another major factor is the continuing instability around the globe. With the neverending woes in the Eurozone, conflict across the Middle East and Russia and China’s economies in turmoil, investors inevitably are looking to find safe havens for their money and the UK is proving to be a solid bet.
The report also shows its good news across the individual investment sectors. The office sector surged ahead in Q2, accounting for almost half of all investment. The strongest performers were London and the South East but I expect the regions to get stronger over the course of the year as we’re continuing to see a rise in demand and a number of new developments are now finally coming through the pipeline.
This rising demand coupled with a lack of available office space is also turning into optimism for developers and that will also see the return of speculative projects in the months to come.
Again industrial was a top performer and that is reflected across the country. The only blip was a drop in retail investment – which fell to its weakest level in two years – but that will recover in the second half of the year due to a number of major centres due to come to the market.
Yield compression also resumed strongly, reversing the brief upward movement we saw in Q1. The average all property yield compressed to a five-year low of 6.88% as yields fell in all sectors. With furious competition continuing in London, office yields also sank to a new low of 4.2.
In my own opinion, property investment will remain to be a safe bet. As I said at the start, the likelihood of the bubble bursting is slim. While London is seeing a significant slowdown, I believe that’s just a sign that the capital is now stabilising and the regions still have plenty of room for growth.
This growth and soaring occupier demand will fuel confidence for investors and developers alike and we’ll see a raft of new speculative development in both the office and industrial sectors in the regions. There’s also still a huge weight of money looking for a home and that will deliver robust trading in the months ahead.
Yes, there are still some draconian elements to the market that dampen spirits a little – the threat of empty rates still continues to frighten developers – but that will only stall values briefly while everyone catches up.
The threat of an interest rate rise also still looms large on the horizon, but any increase will be very slow as the Bank of England looks to nurture the growth in the economy.
There’s been much talk of the impact of a Brexit – Britain leaving the EU – and even though this is unlikely, it will have little impact on property as it’s rarely heavily affected by short-term politics.
Couple all this with the continuing instability in a number of economies and nations around the world and the UK will continue to remain on every investors shopping list.
The national law firm Nabarro have just published their latest UK Real Estate research which interviewed 271 property investment professionals who together are responsible for portfolios worth more than £400bn.
The research shares the insights and predictions of these investment experts and paints a buoyant picture for the real estate market in the years to come. In fact, the report itself is called “Riding the Wave” and suggests we are at the crest of the current cycle.
I’ve read through the report and share some of the most interesting things to emerge from it.
The research found that more than three-quarters of those polled (77%) are more optimistic about the real estate market compared to last year and just 3% are more pessimistic. The combination of low interest rates and current property investment yields are a heady mix for investors compared to rival investments like Government bonds.
Equally, fears about an imminent downturn in the market have greatly reduced. Last year, almost a fifth of those polled feared a downturn within the next two years. In this poll, just 3% are worried about the same.
However, when you look at the five-year predictions, 42% of those polled say the chances of a downturn are high. This isn’t surprising as the research demonstrates many believe we are half-way through the current cycle and a major correction at some point will be inevitable.
With interest rates set to rise steadily at some point soon, but still remain at a historically low level, we will undoubtedly see a further correction in the property market, but this could well be felt by way of another stagnant period as a number of factors take hold.
These factors include the impact of a rate rise on those who continue to be burdened with high levels of debt. This could provide opportunities, however, business confidence is strong and any gradual increase in rates could be circumnavigated by improving occupier levels and an increase in rental growth.
The occupier market may improve investment stock availability as developers gain confidence, but this will take time and, at present, there seems sufficient investment demand to outstrip supply for a number of years.
The market is therefore likely to remain stable and supported by a growing occupier market and investor appetite. Adjoining these two factors is the global desire to invest in UK real estate which is seen as a “safe haven” while some European and Asian markets remain unstable.
Too much demand, not enough supply and a slow production line = slow and stagnant, but a stable service
Unsurprisingly, offices still remain the number one asset choice for investors but there has been a major shift in the popularity of alternative investments. The big mover has been residential property which is now the second most desirable asset for investors.
Rougemont has recently invested in a residential opportunity in Helmsley, North Yorkshire where much of the appeal is being fueled by the growing lack of supply of houses and a unique location. Most agree that the UK needs to build around 200,000 new homes a year to meet demand and we’re not even delivering half of that.
While industrial and retail remain attractive, other big movers include distribution and logistics due to the rise in e-commerce and other alternative investments like healthcare and student housing.
The Conservative’s securing a majority at the last General Election has been widely welcomed across the investment sector, but the prospect of Britain leaving the EU following a promised referendum is seen as a major threat to the stability of the market.
Two-thirds of those polled said an EU exit would be bad, saying it would cause significant disruption in the short-term and would send a poor signal to international occupiers in the longer-term. Crucially, many are sceptical that Britain will leave the EU and few are delaying investment decisions as a result.
In reality, the impact of an exit from the EU is extremely difficult to predict but my feeling is that this referendum will be used as a tool for Prime Minister David Cameron to renegotiate a better deal for Britain and that property will largely remain unaffected.
Another key concern was a rise in interest rates as many property companies and developers are still heavily in debt. Surprisingly, few were concerned about a Greek exit from the EU, with just 1% saying it could destabilise the UK market.
The proposed Northern Powerhouse initiative – a plan to give more powers to Northern England to speed up infrastructure and development work – has been warmly welcomed across the real estate sector.
The north is seen as a land of opportunity for developers, investors and occupiers alike and I’ve written at length about the growing popularity of the regions in our blogs. As a result, a resounding 84% of those in the poll supported the Northern Powerhouse plans.
By strengthening links across the Pennines and from Liverpool up to Newcastle, developers believe the north can demonstrate real strength and vision and that will only help to improve investment prospects.
With increasing commitments like HS2, the Northern Rail Hub and the Northern Powerhouse, Manchester has topped the list for the most appealing investment prospect. Climbing in popularity again, Manchester was named by 79% of those in the poll and was closely followed by Birmingham, Bristol and Leeds.
What’s also interesting is the fall in popularity of Scottish cities. The recent referendum and the rise of the SNP has shaken investor confidence, with many worried about land reform proposals and changes to the political and legal framework.
The top six “cities or towns to watch” were Cambridge, Reading, Liverpool, Newcastle, Oxford and Sheffield. Each of these has the “golden triangle” of ingredients – solid commuter connections, a strong and growing economy and excellent quality of life – and it’s what investors looking to the regions should be looking for.
Cushman and Wakefield’s latest Quarterly Marketbeat report paints a promising picture for UK commercial property investment and shows, as many suspected, that the market has continued to strengthen into 2015.
Healthy business and consumer confidence is delivering the fastest rising occupier demand in almost 20 years and that is applying upward pressure on rents across all sectors.
The biggest riser, unsurprisingly, was the office sector which saw rents soar by 6% over the year while industrial climbed 3.9% and retail 3.2%.
The overriding theme of the investment market is the continuing lack of available stock and that hasn’t been helped by people waiting to see the outcome of the recent General Election. However, the weight of demand and high prices being fueled by intense competition is motivating many to now consider selling.
Activity is also being boosted by the resurgence of the financing market, with banks and other financial institutions once again actively looking for opportunities to lend to across a range of sectors and markets.
Retail is perhaps the biggest surprise of 2015 so far. Prime high street assets in key market towns and major regional hubs have become a top target for UK funds and institutions and overseas private equity as they still offer good prospects for capital and rental growth.
Cushman and Wakefield’s research shows that the rising consumer confidence and solid occupational performances seen in recent months have dramatically improved investor appetite and, while the South East remains the most popular destination, key regional hubs like Birmingham, Leeds and Edinburgh are being considered in the hunt for solid capital and rental growth.
Shopping centre demand also remains high and we are now also seeing a lot of private equity buyers looking at the secondary market and the larger lots.
The top performer this year will be the office sector and that will be primarily driven by rental growth due to the lack of stock. Well-located and good quality secondary stock along with offices with redevelopment potential will see the strongest demand from investors.
In the regions, there is still room for further rental growth and yield compression due to strengthening fundamentals. Well-located and good quality property in the secondary market is also expected to remain attractive due to the potential for capital growth.
Another top target for investors in the office sector will be properties with potential for redevelopment or asset management opportunities in the areas of high occupier demand.
A lack of space will also be the driving factor in the industrial sector and investment appetite will remain strong. The growing demands of occupiers, with internet retailers at the front of that queue, will deliver strong rental growth. ,.
For investors, opportunities are starting to come through from landlords keen to sell assets acquired within the last 3- 5 years, where they can realise profit already. Many have also started speculative development, buoyed by growing demand from occupiers.
Perhaps one of the most interesting aspects in the report is the predictions for rental growth and average prime yields around the country for the next 10 years. It throws out some encouraging news for investors, but also has some surprises.
Looking across the UK and the regions in the north are in the best position for delivering rental growth. In the North, North West and Yorkshire and the Humber, investors can expect to see average rental growth of around 5% in retail over the next 10 years, 5.4% in the office market and 4.2% in industrial.
When considering average prime yields, the same three regions are strong performers again and have seen little in the way of compression over the past 12 months when compared to the rest of the country.
Perhaps most surprising though is that Cushman & Wakefield recently predicted that the South West will see little or no growth in each sector over the next ten years because the market has become so overinflated.