Market Update Q1 2O2O Commercial & Residential - Allsop
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Market Update Q1 2O2O Commercial & Residential
Contents
O1 The Economy
O2 City and City Fringe Investment Market
O3 City and City Fringe Letting Market
O4 West End Investment Market
O5 West End Letting Market
O6 National Investment Market
O7 Commercial Auction Market
O8 Residential Development Market
O9 Residential Investment Market
1O Student Housing Market
11 Build to Rent Market
12 Residential Auction Market
13 Business Rates Covid-19 Update
14 Lease Consultancy - Update for Landlords
Market Update Q1 2020 |
O1
Economic Overview
The onset of the Covid-19 virus, which to the former growth trend next year although it
has been classified by the World Health is clear the economy is to take a major hit in the
Organisation as a worldwide pandemic, has meantime.
caused a major global crisis. The escalation
of infections in the UK led to the introduction In response to the crisis the new chancellor
of lockdown measures on 23 March, which has coordinated a range of economy boosting
remain in place today, and the rise in the measures to support jobs and business, initially
death toll has caused widespread concern. estimated to cost circa £350Bn. These are
The political uncertainty of 2019 is a thing of combined with the Bank of England’s reduction in
the past and whilst we saw a short window of interest rates by 65bps to a record low of 0.1%.
“normal” business activity in the early part of The reduction in interest rates and increase
the year, business and economic activity is in government spending would, in normal
now much reduced and a period of recession circumstances, provide huge economic impetus,
is expected globally, and for the UK economy. however, many commentators are concerned that
the cost to be borne by the public finances will be
The measures to combat Covid-19 have felt over a generation to come.
placed major restrictions on business, and
life in general, and whilst the rate of infection The Covid-19 crisis has dealt a major economic
in the UK appears to be stabilising, and the shock which the real estate markets are still
curve flattening, it is not fully clear as to when absorbing and are reacting to. We at Allsop
and how the restrictions will be released. The have adapted and are working remotely and
lockdown has been extended for at least a business is continuing as best we can despite
further 3 weeks to the early May bank holiday the lockdown and the restriction on movement.
and then a gradual release is expected. The Business carries on, but it is different, we have
current disruption will therefore continue in the held successful online commercial and residential
short to medium term and whilst there will be auctions which have demonstrated the market
an economic rebound in due course there is to be very much alive and our private treaty
likely to be a degree of ongoing fallout in some and professional teams are working hard and
sectors. transacting too. The best assets, as happens
in any crisis, hold up well and are increasingly
From late February the equity markets have sought after, but those difficult secondary
fallen heavily, as has the oil price and sterling properties lacking sustainable occupation are
too has declined albeit recovered some ground being hit hard. Many will find it tough out there
in recent weeks. Further volatility in the but there will also be plenty of opportunities as we
financial markets is expected in the near term. adjust to a new world on the other side.
The back drop for the UK economy at the
start of the year was one of expected low
growth. Prior to Covid-19 growth in 2020
was forecast at 1.1% but this is certain to be
lower now. The OBR has estimated a 12.8%
decline in GDP over the course of the year Ed Dunningham
assuming a 3 month lockdown and 3 months DL +44 (0)20 7543 6739
of partial restrictions. It also estimates a return edward.dunningham@allsop.co.uk
| Market Update Q1 2020 Market Update Q1 2020 |
O2
City and City Fringe
Investment a further two years when the tenants will
vacate, offering a refurbishment opportunity
due to lack of available product rather than
demand.
thereafter. HB Reavis completed its off market
purchase of Quick & Tower House, EC2 for For the first time since the EU referendum
£65M which reflected c. £460 per sq ft based in 2016, the early signs of 2020 suggested
Following one of the highest transaction purchase of the remaining 50% interest in prime City yields might dip below 4.0%-4.25%
on the consented scheme of approximately
volumes ever experienced in the two weeks Watermark Place, EC4 for £252M/ 4.62%/ for the first time since 2007. However, the
140,000 sq ft NIA. The existing, two adjoining
before Christmas in Q4 2019 after the positive £929 per sq ft. The River Thames fronting limited number of opportunities has failed to
buildings benefit from around 12 months
General Election result, much of the pent up freehold is let to Nomura Properties Plc provide significant evidence of this, although
of income before potential to build out the
demand during 2019 was particularly active for a term to 2029 (with a tenant option we may see evidence in the second quarter
fully consented new build scheme, which
at the start of Q1 2020, but with very limited to extend for 5 further years) and marked for ‘best in class’ assets let to blue chip
is located where the City of London meets
buying opportunities. the continued resurgence of activity from tenants such as One London Wall Place,
Shoreditch.
German funds, following Deka’s purchase EC2, which we understand has recently gone
The first quarter was typically subdued in of two assets in 2019. Union Investment Q1 2020 saw the return of many of the UK under offer at yield of significantly below 4%.
terms of available product, with the early continued its buying activity later in Q1 institutions seeking assets in London once
transactions of the quarter being those agreed 2020 with the purchase of Goldman Sachs again, having previously adopted a more It is too early to declare exactly how much of
in December 2019, in a market where owners & Greycoat’s Procession House, EC4 cautious approach with the looming threat of an impact the coronavirus pandemic will have
have been reluctant sellers, primarily due to for £140M/ 4.49%/ £1,330 per sq ft. The redemptions pending the December election. on the City of London investment market,
lack of opportunity to reinvest, but also due to newly refurbished long leasehold interest UBS purchased 70 Wilson Street, EC2 from nor for how long. However, short term signs
lack of performance in other asset classes at was multi-let for 12 years to the earliest Columbia Threadneedle for £93M/ 4.90%/ indicate there are a number of ongoing deals
fund level. The global Covid-19 has caused determination and demonstrated the strong £1,250 per sq ft which provided a term being put on hold, with any new sales being
much transactional activity to grind to a halt demand for long let, newly refurbished certain of c. 14 years at the newly developed put on hold also, as the logistical impact of
during the final weeks of Q1 2020 as the prime assets. The Procession House and freehold, where the majority of the income the lockdown takes its toll. The debt market
market adjusts to unprecedented times. Watermark Place deals brought Union derived from WeWork. BA Pension Trustees has also suffered, with many lenders finding
Investment’s total investment to nearly purchased a development opportunity at Ted it difficult to price opportunities and some
The City of London recorded a total of 20% of the total transaction volumes for the Baker’s HQ, The Ugly Brown Building, St withdrawing from the market temporarily.
£1.955Bn exchanged or completed over 23 quarter. Pancras Way, NW1 for £78.75M. The Ugly There remains a weight of capital wishing to
transactions during Q1 2020, which was 46% Brown Building sale involved a short term invest in London, with most of this monitoring
down on Q4 2019 and 26% lower than the The continued strength of the occupational leaseback to Ted Baker with an option for the situation closely and being opportunistic.
£2.321Bn that transacted during the same market across the City of London and them to re-occupy the building again following
quarter last year. This quarter’s turnover surrounding sub-markets ensured the comprehensive redevelopment.
was only around 2% less than the long term demand for ‘value add’ and development
average of circa £2Bn however, with Q1
typically experiencing the lowest total volumes
deals was at an all-time high during
Q1 2020. With several large tenant
Following what was widely deemed a
positive election result for the Real Estate
The average deal size
of the year historically speaking. All of the requirements and very limited options, sector in December 2019, many overseas for Q1 2020 was £85M,
transactions that took place in Q1 2020 were developers have fought over opportunities investors returned to the market believing
deals which were available during 2019 to capture this demand in what is one London represents good value compared to demonstrating the
demonstrating the lack of newly available of the strongest pre-let markets ever
experienced in the City. A private Greek
other global markets such as Paris, Berlin,
Tokyo, and Hong Kong. European investors
continued demand for
product in early Q1 2020, in particular.
investor who had not invested in the City for accounted for 44% of total volumes in Q1 larger £50M+ lot sizes,
The average deal size for Q1 2020 was over 8 years purchased Thames Court, 1 2020, with 27% from German investors.
£85M, demonstrating the continued demand Queenhithe, EC4 for £190M/ 5.13%/ £834 UK investors accounted for c. 18% of total which has become the
for larger £50M+ lot sizes, which has become
the norm in the City market. The largest
per sq ft following a competitive bidding
process which saw in excess of 10 offers
volumes with Asian investors accounting for
less than 8%. We believe the low transaction norm in the City market
deal of the quarter was Union Investment’s received. The late 1990s building is let for volumes from Asian investors was largely
Matthew Millman
Matthew Millman
DL +44 (0)20 7588 4433
DL +44 (0)20 7588 4433
matthew.millman@allsop.co.uk
matthew.millman@allsop.co.uk
| Market Update Q1 2020 Market Update Q1 2020 |
O3
City and City Fringe The market has, to date, remained upbeat
Letting Market with vacancy rates still low at 5.3% for the
City. These continue to be significantly
lower than previous years.
Grade A space
As we look backin
Q1key areas
2020 during
we are Q1this
writing 2020. Media at 16 Old Bailey and 67,000 sq ft let to
update whilst we are all fully submerged in Convene at 80 Fenchurch Street. In addition,
unchartered waters. All industries are analysing AXA XL has re-geared 155,000 sq ft at 20
the effects of Covid-19 and reviewing key Gracechurch Street advised by Allsop.
decisions for their businesses’ strategies. This LBS Properties has recently secured a rent of D1 requirements have continued to take additional
will clearly impact the take up levels expected The legal sector remains active in the pre- £75 per sq ft on a small Cat A+ unit of 2,121 sq space in the fringes, not only with the letting to
for Q2 2020. letting market with the following firms looking ft at The Verse Building, Old Street let to Kaisen Queen Mary University London but with additional
to secure new Headquarters: Baker Mackenzie Search Marketing based on a 5 year lease with a 3 option space being taken by Anglia Ruskin
The market has, to date, remained upbeat (145,000 sq ft) currently under offer at 280 year break. University (30,000 sq ft) and Global Banking
with vacancy rates still low at 5.3% for the Bishopsgate, Covington and Burling School (15,000 sq ft) at Republic, East India
City. These continue to be significantly lower (80,000 sq ft) under offer at 22 Bishopsgate Whilst 5,000-10,000 sq ft floors have been in Dock. The University of West of Scotland is also
than previous years. Much of the future stock and Slaughter and May (200,000 sq ft) limited supply over the last 9-12 months in the City expected to complete on 16,000 sq ft following
has been accounted for, with 50% of new shortlisting options for a pre-let in 2023-2024. Fringe we can expect to see an increase in the approval for a change of use.
developments already pre-leased in 2020 and availability of this size floorplate over the coming
67% for 2021. In addition to the legal requirements, months.
Salesforce is expected to sign for
The most recent quarterly figures for the 114,000 sq ft at 80 Fenchurch Street.
James Neville
City show that take up is down by 15% on
DL +44 (0)20 7588 4433
the previous quarter at 1.3M sq ft. This was Headline rents are currently £70 per sq ft james.neville@allsop.co.uk
however higher than Q1 and Q2 2019 where although these are expected to soften in the
uncertainty around Brexit and the General short term for space immediately available as
Election delayed decision making and we experience the effects of Covid-19 for the
commitments until the latter half of Q4 2019. remaining 6 months of the year.
Approximately 500,000 sq ft of take up was The City Fringe has continued to see
through pre-lettings and largely driven by the significant activity with the largest letting in
lack of expected supply being witnessed from Q1 2020 being to Queen Mary University
2021-2024. Second hand space accounts London (QMUL) for 55,000 sq ft at Department
for 640,000 sq ft, with new build take up W, 69 Mile End Road; a development by
being limited to 200,000 sq ft. New build Schroders and advised by Allsop. Significant
take up will continue to be limited as many under offers are Rabobank (80,000 sq ft) and
new developments expected to complete this Frontier Economics (30,000 sq ft) both taking
year will have been delayed as a result of the The Bloom, Farringdon. These have been
slowdown in the construction industry due to under offer for some months, with Frontier
Covid-19. Economics rumoured to be paying
£100 per sq ft on the top terrace floor with
The largest deals to have taken place in Q1 an average rent of £85 per sq ft to the lower
2020 include: 318,800 sq ft at 20 Ropemaker, floors. Leigh Day is also looking to secure a
EC2 let to Linklaters LLP, 85,000 sq ft let to IPG new headquarters of 35,000 sq ft and is also
under offer in Clerkenwell.
| Market Update Q1 2020 Market Update Q1 2020 |
West End Investment O4
Market
For the first quarter of 2020, the West End team March started with the same flurry of market is inevitably being adopted by the majority of ever, the ‘‘flight to prime’’ sentiment as well as
a
recorded a total of £2.0Bn either exchanged or activity, however this was abruptly halted due to property vendors and purchasers. However, we secure long income, will drive investment rationale
exchanged and completed in 26 transactions, the outbreak of Covid-19 and its spread across the have tracked two investment sales that exchanged behind any investor transacting in such an
an encouraging 50% ahead of Q1 last year. The globe. towards the end of the quarter “post lockdown” - uncertain market.
average transaction size was just over £77M, 25 Maddox Street and 45 Clarges Street, totalling
which is particularly skewed this quarter by two We are now experiencing quite extraordinary and just over £70M. The above aside, the fundamental strengths of
transactions (The Ritz Hotel and Sanctuary unprecedented times as the Global Pandemic what makes London special, relative to other
Buildings) making up over half the volume. The has undoubtedly had a major impact on global Looking forward it is too early to measure the Global Tier 1 cities, will remain unchanged and
average lot size excluding these two was £40M. financial markets, and property market activity is extent to which the market will be impacted by well positioned to respond to any, temporary,
similarly being affected with a number of West End Covid-19 and how it will evolve as we move change in values. Perhaps wishful thinking but
2020 began with heightened investor confidence transactions being put on hold as the market takes into Q2. In our last market update we predicted our experiences post the Global Financial Crisis
with transaction volumes 62% ahead of the a global pause. It is also worth highlighting that market sentiment for prime core freehold “best and UK-EU referendum result, are that London,
same point in 2019. Initial transaction buoyancy investors from the Far East were notably absent in class” assets would remain strong with prime and in particular the West End, is one of the first
aside, supply remained constrained with just during Q1, presumably due to their much earlier yields and pricing holding broadly stable, with markets to recover.
under £400M worth of stock recorded as Covid-19 lockdown. enthusiasm for trophy products continuing to be
‘formally’ coming to market during the first half driven by overseas investors who are willing to
of the quarter, with approximately £360M of this The majority of transactions recorded this quarter pay for rarity. We expect that now, more than
being made up of three opportunities – Random either exchanged or exchanged and completed
House, Vauxhall Bridge Road SW1 (a relaunch); before the Covid-19 UK lockdown, and the
The Eversholt, Euston NW1; and 1 New Oxford subsequent market pause is not unsurprising given
Street, WC1. Therefore, the start of the quarter, the challenges in predicting the effect on both the
whilst active, experienced a lack of investment economy and the property market, and this pause
stock rather than investment appeal.
We expect that now, more than ever, the
‘‘flight to prime’’ sentiment as well as secure
long income, will drive investment rationale
behind any investor transacting in such an
uncertain market.
Nick Pemberton
DL +44 (0)20 7543 6775
nick.pemberton@allsop.co.uk
| Market Update Q1 2020 Market Update Q1 2020 |
West End Letting O5
Market
As we currently stand, it is incredibly difficult to on the 1st floor at One Curzon Street at a rent
forecast what impact the Covid-19 pandemic and equating to £115.00 per sq ft and The Office
its associated restrictions will have on the West Group Group committed to a 36,000 sq ft new
End leasing market over the short to medium centre at Liberty House, 222 Regent Street,
term. It is clear that the lack of activity in the W1.
current climate is likely to have a significant
impact on the take up of office space moving It is going to be a case of waiting and watching
forward, despite the improved economic and to assess how the West End leasing market
political outlook exhibited prior to restrictions responds to the current turmoil. Market
being implemented in early March. dynamics were resilient up until very recently
and we are hopeful that activity will return
Q1 take up reached just below 500,000 sq ft, the quickly as society as a whole returns to more
lowest figure we have seen for several years. standard operating conditions.
This, combined with what will inevitably be
dramatically suppressed figures in Q2, will mean As workforces have been forced to adapt to the
the market will have to respond significantly in current situation by working remotely, question
the back half of the year to ensure some sort marks have been raised about how demand for
of recovery in the sector. This rebound will be office space will be affected moving forward.
assisted by delayed transactions coming to This has provided a unique opportunity for
fruition, likely achieved with slightly increased businesses to assess how they can efficiently
levels of market incentives. utilise their office space and how effective
the working from home model actually is in
In terms of supply we are being faced with reality. In some instances it may show certain
significant delays to the already restricted Grade benefits to occupiers i.e. how some business
A development pipeline which, particularly travel is unnecessary, but in the main it has
for larger occupiers, was already becoming reinforced for many how important the office
problematic. That said the amount of “grey” environment is to people who require face to
space returning to the market has the potential to face interaction, which the virtual world simply
be significant and when the market does return cannot match.
to normality this could become vital in providing
opportunities for those occupiers who do need to
relocate later in the year.
The largest transactions to complete in the
quarter were dominated by Google securing
both 135,000 sq ft of short term accommodation
it has reinforced for many how important at Euston Tower, NW1 and an additional
32,000 sq ft pre-let for its Kings Cross campus at
the office environment is to people who Q1 Handyside Street, N1. Aside from the tech
giants, Gulf International secured 22,000 sq ft
Richard Townsend
DL +44 (0)20 7543 6718
richard.townsend@allsop.co.uk
require face to face interaction
| Market Update Q1 2020 Market Update Q1 2020 |
National Investment O6
Market
With the post-election bounce swept away in the concerted effort by investors to reposition and Allsop advised on several transactions within this However, inevitably due to Covid-19, £250M of retail
onset of the Covid-19 Global Pandemic, Q1 2020 revamp the high street retail market. sector throughout the last quarter including the park sales have paused, including Lombardy
was a quarter of two halves for UK commercial disposals of Batley Mill Outlet Centre for £3.3M,
property transaction volumes. However, the unprecedented outbreak of The Braes Shopping Centre, Castlemilk, Glasgow Retail Park in west London (£53M).
Covid-19 has resulted in widespread ‘lockdown’ for £3.375M/ 17.72% Triple Net Yield, Barclays
For the full year 2019 transaction volumes for the effectively ceasing all footfall on high streets Bank, Brentwood for £1.8M/ 7.31% NIY, 208 High OFFICES
entire UK market were down overall as follows: and forcing all non-essential retail stores to Street, Orpington, partly let to Poundland and with
close. This has had a significant impact on We entered 2020 with a huge amount of optimism
PD potential on the upper floors for £2.5M (£144
Full Year 2019 working cash flows that many retailers with in the South East and key regional office markets.
per sq ft), Debenhams Department Store, Hastings
small profit margins heavily rely on. Retailers Almost every UK fund had a burning office
for £2.55M (£27 per sq ft) and Sainsbury’s,
£47.23Bn:- down 21.1% on 2018. London who were already suffering due to the rise requirement together with some larger overseas
Morden for £1.4M/ 5.25% NIY.
accounted for £19.66Bn. in online and omni-channel shopping have requirements for the larger lot sizes. Early Q1 saw
been unable to cope with this extreme drop in RETAIL WAREHOUSING three £100M+ lot sizes transact including Bedfont
H2 2019 Lakes (£135M), Arlington Business Park (£129M)
demand.
The beginning of 2020 witnessed continued and Chiswick Park (£312M). These resulted in a
£19.72Bn:- down 28.77% on H2 2018. Q1 transaction volume that more than doubled the
The retailers who are managing to mitigate the demand for retail warehousing as a suitable
effects of the nationwide lockdown are those alternative for those deterred from high street 5 year Q1 average. The South East office market
Q1 2020:
with robust infrastructure capable of fulfilling retail. Until the outbreak of Covid-19 , investors
£11.35Bn:- down 32% on Q4 2019 online orders. maintained confidence in the slightly better trading
of Retail Warehouse tenants compared to their
RETAIL The knock on effect of the lockdown has High Street counterparts and also recognised the
been significant, resulting in a large number importance of underlying residual values for longer
In Q1 of 2020, the High Street retail investment of tenants unable to pay their rent, despite term alternative use potential.
market has experienced two ends of the spectrum. government schemes, such as ‘12 month
business rates holidays’, the Coronavirus The appetite for such assets is demonstrated by
Buoyed by the election results on 12 December Job Retention Scheme and grants for small Aberdeen Standard Investment’s investment of
and subsequent clarity on Brexit, there was businesses. £290M into the sector. The transaction included
an uptick in investor sentiment, with 73 retail the purchase of 6 retail parks as part of a portfolio,
transactions occurring in January and February As anticipated, this has translated to the located in Guildford, Crawley, Luton, Solihull,
at a total transaction volume of £828.88M. The investment market with only 25 transactions Chippenham and Horsham. Additionally, Argo
most significant deals in this period include, occurring in March at a total transaction volume has purchased Gateway Retail Park in Beckton
the purchase of Kings Mall Shopping Centre of £150M. But it is not all doom and gloom. for £45M. In March the Church Commissioners
in Hammersmith for £138M by Ingka Centres, Investor demand for assets in the government completed on the purchase of Wycombe Retail
the purchase of 1 Albert Street, Nottingham by deemed ‘essential’ categories, such as, Park for c. £38.7M.
Thackeray Estates for £16.35M/ 7.50% NIY, the supermarkets, convenience stores, doctors’
purchase of the Crown Glass Shopping Centre surgeries and pharmacies has increased Following the virus outbreak, once restrictions
in Nailsea by Praxis Asset Management for significantly with yields in turn hardening. are lifted the whole retail warehousing market will
£11.15M/ 10.60% NIY and the purchase of 711- need closer tenant examination since no doubt
717 Old Kent Road by the London Borough of This was abundantly clear in Allsop’s March there will be winners and losers over the period;
Southwark for £12.3M which has been earmarked commercial auction, which saw £31.9M there will certainly be plenty of opportunities for
for significant redevelopment through the ‘Future transacted at a 81% success rate (total amount buyers to explore in the coming months.
High Streets’ funding project. The type of parties raised down 50% from March 2019). Notable
who purchased these assets demonstrated a transactions include the sale of a B&M in
Ebbw Vale which sold for £3.475M/ 7.45% NIY.
| Market Update Q1 2020 Market Update Q1 2020 |
the industrial market, distribution warehousing Elsewhere industrial and alternative sectors have
will continue to perform and provide a ‘safe represented almost all of the remainder of the market
alone totalled in excess of £1.1Bn. sectors, isolation is impacting the fundamental haven’ to investors eager to deploy capital. The with notable recent transactions including Oxenwood’s
mechanics of industrial transactions with remainder of the market may continue to stall purchase of three logistics sale and leasebacks
advisors and purchasers unable to inspect, as investors take stock and assess the impact for £25.9M, Urban Logistic’s purchase of seven
technical surveys reduced to desktop reviews this pandemic has had on their existing holdings. distribution units for £31.9M and the Holmes Care
At the time of writing, Covid-19 has largely put and valuers unable to fully support lenders. In However, there remains a considerable weight Portfolio for £47.5M bought by Impact Healthcare
most requirements on hold, particularly the wall addition to this, many industrial investors, in of capital ready to be deployed in the sector REIT.
of overseas capital which tends to involve some particular those exposed to more granular, multi- and when the dust finally settles and we find
element of debt. Having said that, the office ourselves back behind our desks, the sector will The market is understandably largely devoid of on-
let industrial property are feeling the effect of
sector remains the focus of UK councils and shine again. market portfolios at present and a number of key
rental concessions and therefore having to focus
some overseas HNW capital so there are still market players continue to look at off-market and
attention to ‘credit control’ of existing holdings
transactions happening. PORTFOLIO confidential opportunities. This shift to a more opaque
rather than potentially exposing themselves to
transactional market has increased year on year for
further risk in pursuing new opportunities. Q1 2020 has defied expectations to record one
Two examples of this are Allsop’s acquisition of quite some time but the current market volatility has
300 Capability Green for a Middle Eastern client of the highest levels of transactional volume served to highlight this particular trend.
With this said, the logistics sectors continues
(£62M) and the acquisition of Chapel Street, of portfolios over the past 10 years totalling
to offer comfort. Being confined to our homes
Liverpool (£40M) for a Far Eastern investor. £6.32Bn. Blackstone has led the charge It is interesting to see overseas investors continue to
has led to a huge hike in online shopping with
Both of these deals have happened following the spending £4.66Bn on the acquisition of the IQ play an active part in the UK market given consistently
food delivery services spearheading this growth.
Covid-19 pandemic. The situation remains fluid Student Accommodation platform from Goldman attractive currency disparities and there remains a
As a result, online retailers are expanding
but the fact that there is still some market activity Sachs and Wellcome Trust accounting for the large weight of capital to invest in the UK. As some
operations, increasing staff numbers and on the
gives reason for optimism. vast majority of market activity so far this year. of this is currently placed on hold, we expect the
whole paying their quarterly rents. Whilst global
Blackstone has also acquired Hansteen and the latter half of 2020 will become increasingly busy as
isolation is accelerating this trend, with a new
Cara Portfolio for the logistics focused Mileway restrictions ease, institutional fund activity increases
stream of online shoppers gathering comfort with
platform and so far have accounted for 83% of and further stock is released to the market.
this retailing platform, the logistics sector will Alex Butler
INDUSTRIAL all volume to date. DL +44 (0)20 7543 6722
continue to benefit and perform. alex.butler@allsop.co.uk
Whilst proving to be more resilient than others,
This has been highlighted in a number of high
the industrial sector is not immune to the
profile deals transacted during the Covid-19
on-going Covid-19 pandemic. Whilst off to a
promising start, transactional volumes in Q1
have slowed considerably resulting in £1.37Bn of
pandemic. These include a portfolio of 9 regional
distribution units acquired by Urban Logistics There remains a considerable weight of
for £56.M/ 6.3% NIY, The Cara Portfolio which
industrial transacted over the quarter reflecting a
c. 40% reduction from Q1 2019.
comprises 22 small-medium sized industrial/ capital ready to be deployed in the sector
logistic units acquired by Blackstone for £122M
Since the Covid-19 outbreak, we have witnessed and DHL Runcorn which was acquired by a
Singaporean investor for £34M/ 5.75% NIY.
and when the dust finally settles and we find
industrial investors take a considerably more
cautious approach, or in many cases no longer
Whilst there remains uncertainty over the
ourselves back behind our desks, the sector
consider new opportunities. Like all property
longevity and impact the pandemic will have on
will shine again.
| Market Update Q1 2020 Market Update Q1 2020 |
Commercial O7
Auction Market
As this is written, the Auction Teams, like The process threw us many challenges, but proved
everyone at Allsop are dispersed throughout effective as the team all worked hard to connect with
the land, and are adjusting to one of the most the market and ensure the stability of the system.
tumultuous months in our careers.
Our clients supported us through the change,
The Commercial Auction market started the encouraged by the rigor of the process and our very
year with a spring in its step and much talk clear assessment of likely demand. The buyers
of the “Boris Bounce”, which was justified as patiently followed new guidelines and registered to bid
we had a hugely busy February sale, raising online.
£67.7M and setting new records for yields
particularly in the multi-let industrial sector. Our overall result was a sale of £31.9M as we go to
This sector also provided the biggest lot of the press and with the after sales continuing to get done.
day at £3.67M/ 7% NIY/ £102 per sq ft) for a
multi let estate in Warrington. This formed part The largest lot sold was a B&M Store in Ebbw Vale,
let on a lease until 2031, which sold at £3.475M/ 7.4%
Buyers have
evolved very
of £18.3M of industrial investments sold on the
day; more than in the whole of 2019. NIY.
market will adjust because that is what markets do.
Strong yields were paid in the convenience
sector, which has become a hedge against the
Other large lots included a number that had been on
the market via Private Treaty and were sold on the We are humbled and very grateful for the efforts of our quickly to the
new normal, with
auction contract, including a multi-let high street retail teams, clients and buyers who have all joined in the
failings of the High Street. Single let retail with
investment, in Oldham, selling just under the guide process and made things happen.
long leases also attracted strong prices, an
a great deal of
example being a B&M store in Ashford, Kent price of £2.1M.
In addition to our scheduled 19 May auction we have
let until 2032 without breaks, which achieved added an additional auction on 16 June, which, with
Highlights included the convenience sector, both
£2.625M/ 6.8% NIY.
roadside and in town which continues to be a focus for
buyer demand. Pharmacies also provided buyers with
the 14 July sale gives our clients three opportunities to
transact before the Summer; all will be online.
capital waiting
Our March catalogue included 163 lots and
was launched with great confidence on 6
March as we looked forward to a ballroom sale
comfort in the longevity of the rental stream, as many
tenants withheld rent on the March quarter day. Lots 1
for opportunities
on 30 March. and 2 were both let to Boots, on long leases and sold
at 4.5% NIY and 5.2% NIY respectively. in an ever more
No one needs reminding what happened
next, but suffice to say that by the time of There is no doubt that the lockdown will hasten the polarised market.
the auction, put back a day to 31 March, demise of some weaker businesses - town and city
Government guidelines had forced us through centres are empty threatening the very existence of
contingency plans A to F which was the fully tenants in the retail and leisure sector.
online auction.
Buyers have evolved very quickly to the new normal,
On the day, no two members of our teams were with a great deal of capital waiting for opportunities
together as we watched the auction unfold in an ever more polarised market. The stable pricing
online; the system having been implemented and demand in specific sectors as described above
in just five working days, a huge tribute to the is in contrast to a paucity of transactions in the wider
power of ingenuity and connectivity. market, but there is always appetite to trade. The George Walker
DL +44 (0)20 7543 6706
george.walker@allsop.co.uk
| Market Update Q1 2020 Market Update Q1 2020 |Residential O8
Development Market
The start of Q1 2020 was one of positivity. A large number of both developers and vendors
After some uncertainty in Q4 2019 as a result are currently focussed on their cash flow position,
of Brexit and the General Election the country furloughing staff, re-negotiating funding deals,
certainly started the year with a degree of whilst negotiating their way through various
optimism thanks to some clarity around Brexit councils’ planning systems to establish what
discussions and the benefit of a government they are able to actively progress in the new
with a majority that enables them to take virtual working environment. Certain councils
decisive action. are holding virtual planning committees and
delegating decision making powers to officers to
Purchasers’ confidence was significantly prevent a stall in the system, while others are still
improved and we saw positive growth in house establishing what works for them.
prices over the majority of the first quarter,
with sales rates in London higher than in any The chaotic end of Q1 2020 could not be further
quarter since Q1 2018, according to Molior from the upbeat start, however as we progress
London (providing some with the opinion that through this unchartered territory it is clear that
the so called ‘Boris bounce’ was taking hold). businesses of all forms are establishing how to
This confidence was clearly starting to translate adapt and operate in this new environment with
through to the land market with increased the longer term impacts as yet un-known. The
activity from developers who had held back fundamentals of the UK property market pre
towards the end of 2019, generating good Covid-19 combined with the financial incentives
competitive bidding and an increased number offered by the government in the short term
of constructions starts. suggest that the rapid dip in activity could be
followed by a rapid recovery, however the
However as we entered the later part of March feasibility of this is certainly dependent on the add or subject to planning deals. There remains a
the impact of Covid-19 started to become fundamental shortage of homes and therefore there
length of the lockdown.
apparent and as the country entered lockdown will be continued demand for land, and over the
and people’s ability to work and move about coming months timing and pipeline assessment will
In the short term there will be less activity as
was hindered, certain parties paused to take be key.
certain landowners wait for clarity and developers
stock of the situation. However that said, preserve cashflow, however the medium to long
many transactions that were already underway term effect will be linked to the performance
progressed with limited impact, with the of the wider housing market. As the length of
purchasers’ views being that the temporary reduced activity increases, the knock on effect
health crisis would only have a short term
impact.
on developers’ finance agreements, cash flow,
pre-sales, pre-lets and construction and planning There remains a fundamental shortage of
homes and therefore there will be continued
deadlines will become more severe meaning those
Further caution arose when the larger house without significant cash reserves may struggle.
2xxxxxxxxxxxxxxxxxxIn the meantime however, there is certainly a
builders felt a drop in sales activity and, despite
official government guidance advising that
construction sites can remain open, a number
demand for land.
proportion of the market that is cash rich and
of developers came under increasing pressure
opportunistic who believe in the fundamentals
to close their construction sites, due to the
of the UK residential market and see this as an
inability of their staff to operate within the social
opportunity to acquire a pipeline of sites with
distancing guidelines.
significantly less competition, however there is a Anthony Dixon
clear preference for delayed completions, value DL +44 (0)20 7344 2625
anthony.dixon@allsop.co.uk
| Market Update Q1 2020 Market Update Q1 2020 |Residential O9
Investment Market
It certainly felt like the clouds had lifted at the Once total lockdown arrived however it has
end of Q4 with Boris into power and a palpable left us all wondering what the longer term
sense of relief across the property industry. consequences will be. Undoubtedly there will
Talk of a ‘Boris bounce’ led to much optimism be some negative market fluctuation in the
and we all returned to work in the new year short term but we are confident there will be
with a spring in our step. Many of the potential a strong bounce back in due course.
vendors referred to in my Q4 update were quick
to contact us and were keen to take advantage One thing is for certain however, there is still
of renewed market confidence and commence a huge shortage of housing across the UK
marketing of their stock, thus Q1 was off on a and thus residential investment remains a
very positive note. very sensible and defensive place to deploy
capital due to the additional levels of risk
Indeed many of the deals that had slowed down attached to some commercial covenants that
during the uncertainty of Q4 picked up the pace would traditionally have been considered
and a £6M acquisition in Ealing for one client fairly safe.
was quick to exchange followed by a £13M
sale of a ‘pepper potted’ portfolio of flats in the
Midlands and a £13M part investment, part
development opportunity on the London/Surrey
border.
The market optimism was probably best
encapsulated in the enthusiasm shown by the
market for two well appointed and affordable Michael Linane
blocks of flats in Coventry showing circa 7% DL +44 (0)20 7344 2623
michael.linane@allsop.co.uk
gross yield with well over 30 viewers and 20
offers.
Needless to say the concerns over Covid-19
started to have an impact at the beginning of
March albeit with initially quite mixed feedback.
Some residential investors are keen to press
Some residential investors are keen to press ahead with their acquisitions where they have
ahead with their acquisitions where they have an
acceptable yield and with their finance agreed, an acceptable yield and with their finance
agreed, they want to see their cash giving
they want to see their cash giving them a better
return than in the bank whereas others are
having doubts about whether they will be able
to get a better deal post Covid and are sitting on
their hands.....for now.
them a better return than in the bank
| Market Update Q1 2020 Market Update Q1 2020 |Student Housing 10
1O
Market
2019 was largely recognised as another owners, operators and developers.
successful year for the sector. Commentators
and property consultancies agree that The immediate issue has taken investor attention
transaction volumes hit >£5Bn, bringing the away from any growth or investment strategies,
year close to the record breaking levels of with the area of highest importance right now
2015. Continuing the trend, news broke being operations. UNITE announced its waiver
in January and February of this year that of third semester rents and clearly many other
Goldman Sachs and Wellcome Trust were to operators felt obliged to follow suit. This will
sell IQ to Blackstone for a reported £4.7Bn. create a significant issue for many, in what will
The student accommodation market was be the first ever chink in the armoury of student
alive and kicking harder than ever, grabbing accommodation as an asset class. The pandemic
continuous headlines with transaction volumes has proven student accommodation is not
now making this one of the most active sectors immune to a global crisis, but that should not take
of the property market in the UK – 2020 was anything away from its outstanding resilience to
clearly set to be the new record breaker. a rather turbulent decade. It will be interesting
to see if the perceived risk of the asset class
The UK government was confident of upping changes and only time will tell if this leads to a
international student intake by a third, subsequent yield shift.
leveraging on its internationally renowned
and highly in-demand Higher Education Whilst it is easy for commentators speaking
Institutions. UCAS statistics released outside the ownership circle, logic would support
the notion that whilst the sector may take a hit for
It is quite likely there will be a rush of post-
this quarter underlined the continued
attractiveness of HE study for domestic and
international students with some universities
up to 12 months, it will recover quicker than many.
Its consumer is not one that can hang around summer bookings which will inject some
such as Nottingham Trent, Bristol and
Coventry seeing unprecedented levels of
in life – there will continue to be the need to
educate and travel for the very best education. It confidence into the sector, followed by what
is likely to be a bumper AY 21/22.
acceptances. Investor confidence was is quite likely there will be a rush of post-summer
quite understandably high, despite some bookings which will inject some confidence into
uncertainties surrounding Brexit. What a the sector, followed by what is likely to be a
difference a few weeks make… bumper AY 21/22.
The student housing market is heavily Naturally investors who are caught midway
impacted by the Covid-19 pandemic and through acquisitions may seek some comfort
whilst it is too early to make an accurate in respect of forward lettings, but land deals
assessment, deal flow has and will continue for delivery in AY 21/22 and beyond should be
to slow. The impact is really one of mobility – concluded. The bounce of 2019 and of just a few
how and when will students be able to resume weeks ago should not be forgotten – it was built
their education as planned? The overarching on solid foundations.
problem is one of uncertainty. Will international
students have the ability (or even appetite) to
travel to their host university city? When will
studies reconvene? Will the academic year Anthony Hart
2020/21 be impacted and how? Right now, DL +44 (0)113 243 7950
anthony.hart@allsop.co.uk
nobody knows and that is a huge issue for
| Market Update Q1 2020 Market Update Q1 2020 |11
Build to Rent Market
Whilst the various world economic factors put in Exeter which will include 230 BTR homes;
uncertainty across many sectors of the property and Moda Living, Apache and North Star have
industry, the ‘long term’ view taken by almost all been granted planning for a £200M residential
investors means that BTR remains an attractive scheme in York.
investment with counter cyclical dynamics.
BTR housing continues to emerge as more
Whilst many commentators suggest the private specialists in the developer/contractor space
for sale market will suffer as we emerge from are attracted to the model. Major masterplan
the current health pandemic, mainly due to projects see the addition of a BTR element
uncertainty and mortgage availability, BTR as an attractive diversification alongside the
offers quality rental accommodation with traditional private for sale schemes. Allsop has
cohesive communities where residents can feel two such developments, located in the north
secure for longer term tenancies. west and east of England, which are at varying
stages of the planning process and forward
The British Property Federation’s (BPF) latest funding agreements for both have now been
figures show a total number of units either agreed with investors. We expect developers
complete, under construction or with planning in this space to consider such an exit, if as
standing at 152,071. The regions have closed anticipated, there is a slowdown in the private
the gap on London in terms of the number for sale market.
of BTR homes, accounting for approximately
75,663 with 76,408 in London. Yields remain strong for well-designed BTR
stock in prime, practical locations; in London
Recent BTR activity of note includes: Invesco’s and strong south east locations, NIYs range
£73.8M forward fund of 294 apartments at from 3.25% to 4.00%, with a number of major
Aubrey Place in Milton Keynes which will regional centres at 4% to 4.5%. Secondary
the ‘long term’ view
be developed and operated by Packaged locations are seeing closer to 4.75% to Forge, the first BTR development in Newcastle.
Living, due for completion in Q2 2022; L&G’s 5.25% NIY. It is too early to say what effect In February ALM was chosen by Barings to
acquisition of its second BTR scheme from the current investment climate will have.
developer Renaker with the new North Tower
in Deansgate Square, Manchester comprising
Transactional evidence will be scarce in the
next few months as very few development
take over the BTR management operations of
The Keel in Liverpool, a 240 unit scheme on taken by almost all
investors means
the historic Queens Dock. ALM has also been
276 apartments across 37 storeys; Grainger agreements will complete due to a large instructed by Land Securities to manage its
securing its first scheme in Nottingham having numbers of contractors being reluctant to go residential portfolio.
agreed to forward fund Blocwork’s 348-
home scheme for £55.6M; Grosvenor has
on-site due to Covid-19 health and safety
concerns. However, we may potentially
that BTR remains an
been granted planning consent for a BTR
neighbourhood in Bermondsey, London for over
see some stabilised stock traded subject to
individual investor pressures in uncertain attractive investment
1,500 homes of which 35% will be affordable.
The first phase will deliver 359 rental homes; a
times.
with counter cyclical
dynamics.
joint venture between Knight Dragon, Lincoln Allsop Letting and Management (ALM) has
Property Group and MGT plans to build 500 now launched Moorfield’s third BTR scheme;
Sam Verity
BTR homes in Greenwich Peninsula subject Duet in Salford comprising 270 units, adding DL +44 (0)20 7344 2693
to planning; Eutopia Homes has been granted to the award winning management of The sam.verity@allsop.co.uk
planning permission for a £130M urban village Trilogy in Castlefield, Manchester and The
| Market Update Q1 2020 Market Update Q1 2020 |Residential Auction 12
Market
The two halves of Q1 2020 could not have However, during its compilation, the
been more contrasting. Covid-19 outbreak was rapidly spreading
beyond China. Two days before its release,
The year started positively with a new the World Health Organisation declared
prime minister enjoying a strong majority a global pandemic. Midway through
and long awaited closure on Brexit. The marketing, the prime minister announced
market responded with enthusiasm. Our total lockdown. Days prior to this, the Allsop
February sale was more active than partners had agreed that the only safe way
we could remember for some time. to hold an auction would be to move to an
Interest was strong during marketing. exclusively online offering. The residential
On the day, bidders queued outside the sale was moved to 2 and 3 April.
InterContinental Hotel to clear the venue’s
security. The start was delayed for half an Over 780 unique bidders entered the
hour and the room was hastily extended registration process with more than 300 The online sale was more successful Online auctions are, for the time being,
to accommodate the crowd. Bidding going on to place bids over the two days. As than we had hoped. Over £30M has the only truly functioning marketplace for
remained lively throughout the sale and ever, in times of crisis, buyers focussed on been raised and post auction sales are trading residential property.
it was clear that the confidence that was quality of location and security of income. progressing at a pace. 78% of all lots
so lacking over previous years was finally London homes fared relatively well. Ground offered have been sold. Our next sale is planned for 28 May and will
restored. The auction delivered a total rents remained popular. Interestingly, be held exclusively online. The catalogue
receipt in excess of £45M. development opportunities remained in In the private treaty sector, prospects for will be released on Friday 8 May. Entries
demand. A leasehold rooftop with potential sale are far bleaker. The government has are invited.
All sectors seemed to be reviving well. for airspace development in East Finchley advised people not to move home unless
Development opportunities were keenly raised £711,000 – a promising result in absolutely necessary. It is no surprise
sought after. Lot 53, a large building in light of the fact that there was no planning therefore, that Hometrack reports that
Wimbledon with planning permission permission, only a pre-application report. sales subject to contract in the mainstream Gary Murphy
DL +44 (0)20 7344 2619
for conversion to seven flats, raised market are down 90% since 7 March. gary.murphy@allsop.co.uk
the highest price of the sale at £2M. Despite the inability of the firm to arrange
Encouragingly, interest extended beyond viewings due to government restrictions on
London. Lot 163, a 16,000 sq ft care public gatherings, over 70 vacant properties
home in Hindhead, was knocked down were successfully sold. Virtual tours and
for £1.38M. Ground rent investments
remained in demand; Lot 17, a landmark
internal photographs had been uploaded to
the Allsop website. When surveyed, 84% of
Despite the inability of the firm to arrange
leasehold building in St John’s Wood,
London, subject to 85 occupational under
buyers said that they had not viewed their
purchases before bidding. 24 buyers were
viewings due to government restrictions
leases (22 of which were reversionary)
was sold for £950,000.
buy-to-let investors, 15 were developers,
nine were owner occupiers and 11 were
on public gatherings, over 70 vacant
Our 31 March catalogue was looking
undecided. properties were successfully sold.
particularly promising with 285 lots.
| Market Update Q1 2020 Market Update Q1 2020 |13
Business Rates Relief
Covid-19 - Update
The government has introduced a number of There are various exclusions to the above
measures to give support to businesses through which include banks and building societies,
the period of disruption caused by Covid-19. In this medical services (eg dentists, vets) and
article we will set out the measures taken and how professional services (eg. accountants,
they will apply to businesses in England. financial advisors) as well as generally
properties that are not reasonably SMALL BUSINESS GRANT FUND qualify for the 12 months rates holiday.
BUSINESS RATES RELIEF accessible to visiting members of the public. In order for the government to reach smaller
The main relief granted by the government is a 12 companies in other sectors, a grant has been drawn An appeal could be warranted for example on an
month exemption from rates on most occupied retail, To qualify for the relief the property should up to assist small businesses. Qualifying ratepayers office in a location where the main tube station has
leisure and hospitality properties for the 12 months be wholly or mainly being used for the above will be eligible for a grant of £10,000. shut and all the local shops, cafés and restaurants
commencing on 1 April 2020. qualifying purposes. This is a test on the have closed.
use of the property rather than occupation. WHICH PROPERTIES WILL NOT GET RELIEF
There is no Rateable Value limit on the relief and Therefore, properties which are occupied but Although significant rates relief is being given to There will be many situations where a ‘Material
ratepayers that occupy more than one property not wholly or mainly used for the qualifying those in the retail, leisure and hospitality sectors, Change in Circumstances’ appeal is potentially
will be entitled to relief for each of their eligible purpose will not qualify for the relief. many ratepayers will not receive any relief. These warranted although these need to be considered
properties. include those ratepayers of: on an individual basis due to the complex rules
To qualify for the relief the property must relating to such appeals. These appeals are time
WHICH PROPERTIES WILL BENEFIT FROM be occupied although the government have • Empty properties – which were empty prior to sensitive and would require immediate professional
BUSINESS RATES RELIEF? made it clear that properties which have Covid-19 rating advice and action whilst the property is being
Set out below are the broad categories of occupied closed temporarily due to the government’s • Other properties which cannot realistically be affected.
properties which are being granted the rates relief, advice on Covid-19 should be treated as occupied but receive no relief e.g. colleges,
at the time of writing in early April: occupied for the purposes of this relief. universities and office occupiers EMPTY PROPERTY
It seems owners of empty property have drawn
• Shops, restaurants, cafés, drinking RETAIL, HOSPITALITY AND LEISURE As a result a landlord paying rates on an empty the short straw, being completely excluded from
establishments, cinemas and live music venues GRANT FUND shop is not being granted any relief from business government support. There are however certain
• Estate agents, lettings agencies and bingo halls The government has also introduced rates. Many sectors are aggrieved at not being existing provisions in the rating regulations which
• Properties used for assembly and leisure the Retail, Hospitality and Leisure Grant granted any relief and believe the challenges they could in certain circumstances enable a claim to
• Hotels, guest and boarding premises and self- (RHLG). This will give additional assistance are facing are comparable to those in the retail, be made for rate relief. At the time of writing, local
catering accommodation to some of the businesses in the retail, leisure and hospitality sectors. and central Government have not published any
• Privately run nurseries which are on Ofsted’s leisure and hospitality sectors who qualified guidance for those affected – but these are rapidly
EYR and provide care and education for children for the 12 months rates exemption. RATES APPEALS changing circumstances and seeking professional
up to 5 years old. There are many instances where the impact of the advice early on could prove critical later down the
Qualifying properties in these sectors with Covid-19 and the government measures taken to line.
Detailed guidance has been issued to assist the a Rateable Value LESS than £51,000 will limit the impact will warrant rates appeals seeking a
identification of qualifying properties within these also be eligible for a grant of up to £25,000. temporary rates reduction. This may enable some
broad categories. The ultimate decision however, There are various detailed qualifying criteria. relief from rates for those ratepayers who do not
as to whether to grant the relief, is made by the local
council.
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