A Thames Valley Commercial Property survey conducted by THP Solicitors confirms that industrial units are in hot demand with developers set to take advantage of people moving out of London into the Thames Valley.
THP Solicitors has polled over 100 commercial property surveyors and agents in Thames Valley to get their insights into current trends in the local market. Collectively they felt the decline in high street shopping/ rise in e-commerce and shift in social behaviour to working from home would be the two biggest influential factors on the commercial property market in the Thames Valley in the next 5 years.
With footfall across high streets and shopping centres decreasing year on year for the best part of a decade even before the pandemic, and e-retail increasing dramatically in turn, this is no great surprise. Whilst some retailers will always feel a physical space is a synonymous part of their marketing strategy, and those with personal service-based businesses have no other option, poor performing outlets will be under threat and landlords of retail space may need to consider their options, with many looking to convert to residential.
With flexible working becoming the norm and the need to be physically present in your place of work no longer a priority, a mass exodus of people from the cities to the more comfortable suburbs is underway. The proportion of buyers within London postcodes registering with estate agencies outside of the capital has reportedly almost doubled, which is great news for the Thames Valley, with larger properties, where working from home options are more comfortable and commute time is less of a factor, fuelling the demand.
We asked which property types were currently in most demand and industrial distribution/logistic units were by far the most popular with 75% of the survey votes, closely followed by industrial units for manufacturing. Next came flexi-space/ serviced office and out-of-town/provincial office space. Retail units, both in town centre and out of town locations, together with pubs/hospitality venue were unsurprisingly in the least demand.
This trend has also been reflected in the transactions THP Solicitors are retained on, and a number of our manufacturing clients are looking to increase their industrial space to absorb the growing demands of their businesses.
Tenant activity in general
With many tenants struggling to pay their rent, we wondered what types of terms they might be seeking from their landlords. The most popular demand, 64%, was rent payments on a monthly basis rather than a quarterly basis, allowing tenants to manage their cash flow more effectively. To date all our landlord clients at THP Solicitors have accepted these requests from tenants and are conscious that any decision as a landlord at the moment needs to avoid a tenants insolvency, leaving the landlord with no rent, difficulty in securing a new tenant at a similar rent and possibly even a liability to pay rates on the empty property. Shorter terms and rent reduction were the next most popular options along with more tenant-friendly break clauses.
Interestingly, the survey indicates that there has been very little movement between tenants and landlords to instigate direct discussions on which to base negotiations. This hesitancy by both landlords and tenants to communicate won’t help either weather the storm, and just kicks the issue down the road. At THP Solicitors we are helping many clients start these conversations and act as a third party in exploring the options. However, whilst we would encourage discussions, both sides should resist the temptation to reach an informal agreement as that may result in unintended consequences. Our advice is that any agreement to vary the existing terms should be very carefully considered and concessions, time limits, interest payments and mechanisms for ending the agreement documented.
Property owner activity
We asked what property owner/ investor clients were considering in terms of activity. Results from the survey showed that 45% were enquiring about converting commercial space to residential and an equal number were enquiring about selling off all/part of their property portfolio and/or passing their property business/management onto family/ others. This re-invention of commercial portfolios to residential can be challenging as the scale isn’t always attractive for investors, especially retail to residential. However, with an ever-increasing population and national shortage of housing stock, residential demand should be self-fulfilling so potentially a less risky investment. Permitted Development Rights, originally introduced by the government in 2013, allow offices to be converted to residential use and has led to a significant amount of conversion activity, even pre-pandemic.
THP Solicitor’s portfolio clients are carrying out strategic reviews of their property stock in consideration of the change in risk of some of their tenants and impact the pandemic has had on the retail and office sectors in particulars. Whilst these reviews are likely to continue until there is a settling once the lockdowns end, we are able to assists clients following these reviews with lease re-gears or other asset management implementation.
More insights to come
We have a lot more data from the survey on the trends in the office, retail, industrial and developer sectors, with some struggling and others booming, which we will publish shortly.
If you are an investor, landlord, tenant, or developer and would like legal advice on any commercial property transaction please contact Frances Watts, Head of Commercial Property on firstname.lastname@example.org or 0118 9209499.