52 commercial property
Real estate activity continues throughout the UK
Much is written about the attractions and uniqueness of the London real estate market. This can create the impression that real estate investors should focus solely on London and stay clear of the rest of the country, writes Mark Stuckey, Barclays head of southern real estate. Typically we hear that outside London the vast majority of leases are with the public sector and therefore subject to retrenchment, retail demand is non-existent and building quality is lower than in London. At Barclays we think that these views are an over-simplification and do not represent what we see in the market
... we expect that there will be interesting opportunities for our customers outside of London
... our view is not that London doesn‘t represent attractive opportunities but that it doesn‘t have a monopoly of these
... there are key differences, particularly around lease lengths, depth of demand, marketing periods as well as the specific types of assets. When looking at lending transactions we need to keep a close eye on these
We do agree that the London real estate market has a number of characteristics which make it exceptional. The attraction it has for international investors who by a number of accounts are now the largest owners of commercial real estate in the capital is a key driver. Similarly the residential market draws heavily on foreign interest both from the attraction of overseas discretionary buyers and the talent pool that is drawn to London across many sectors which supports both the rental and purchasing market. On the occupier side of the equation London remains Europe‘s dominant financial hub, retains strong areas in media and other creative industries as well as very strong positions in legal services, education and technology. In short, our view is not that London doesn‘t represent attractive opportunities but that it doesn‘t have a monopoly of these.
Interestingly, Savills European Investment Market Research suggests that 60% of the transaction volume in the commercial real estate space in 2012 has been concentrated in London. By comparison, ONS Gross Value Added data shows London accounts for approximately 20% of UK GVA suggesting that the real estate market is three times more concentrated on London than the economy as a whole.
Not surprisingly, both macro and micro locations are very important – but there is nothing new in that. We can all see some vacant or seemingly-vacant buildings, even in good locations in London. As such it is not surprising that this can also be found outside the capital. Arguably, however, outside London the micro location is more important. Not only is the location of great importance when we look outside London but also the approach of landlords. In many parts of the country the degree of continuing occupier demand found in London is less clear. As such, we see landlords being much more pro-active and tenant-oriented to make sure they provide the right product and high service levels.
Despite the above similarities there are key differences, particularly around lease lengths, depth
Barclays Bank PLC is registered in England. Registered Number 1026167. Authorised and regulated by the Financial Services Authority. Registered Number 122702. Registered Office: 1 Churchill Place, London E14 5HP.
www.businessmag.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2012
of demand, marketing periods as well as the specific types of assets. When looking at lending transactions we need to keep a close eye on these. As with all transactions our starting point is the strength of and relationship with the sponsor of the transaction. For transactions outside of London we primarily focus on the following:
• Location: Is the asset well located for its use including transport links, modes of accessibility, proximity to customers?
• Demand: Is there sustainable tenant demand for that kind of product in that location looking beyond existing lease terms? What factors are driving this demand – are any of them transient?
• Building type/quality: Is the asset of the appropriate standard and nature for current and future tenant demand in terms of layout, efficiency, flexibility and environmental sustainability?
None of these factors are new or unique for real estate transactions although their importance has likely increased.
In summary we expect that there will be interesting opportunities for companies outside of London and we look forward to backing customers on transactions where the key fundamentals are strong.
Details: Mark Stuckey Head of southern real estate, corporate banking 07827-807751 (mobile)
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