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Uneasy equilibrium – RICS Commercial Property Q3 Market Survey launch

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Summary: “An uneasy equilibrium” was the key finding from the RICS Commercial Property Q3 Market Survey launch.

Roger Cohen and Claire Milton of Bryan Cave Leighton Paisner were delighted to host the RICS for their launch of the Commercial Property Q3 Market Survey.

Tarrant Parsons of the RICS gave a summary of the key findings from the survey, highlighting a turning marking with more space available and less occupier demand.  Other findings included:

  • rental expectations are tailing off;
  • geography is at least as important as sector in understanding the lettings market;
  • industrial is the ‘warmest’ sector;
  • London office rents are softening;  but remain strong in the North and South;
  • lack of clarity around Brexit is impacting the occupier market.

A panel chaired by Robert Peto - Non-Executive Chairman, Standard Life Investments Property Income Trust Limited and comprising Joss Brushfield – Investor, Financier and Asset Manager; Simon Durkin – Head of European Research, BlackRock Real Assets; Ian Goldsworthy – Managing Director and Head of CRE Listed, Commercial Banking, Lloyds Bank plc; Simon Wainwright – Director, J Peiser Wainwright discussed their own market experiences.

Key  themes arising out of these discussions were:

Retail

Shopping centres are showing very significant signs of distress.  The downturn is seismic rather than cyclical and the retail peak to trough may be as much as 40%.  The general feeling is that valuers are burying their heads in the sand given the number of CVAs.  Shopping centre owners, as announced by Intu, may look to develop surplus retail space into residential.

Lending

Caution and discipline are the watchwords or the UK’s lending banks.  In 2008 bank lending to Real Estate was circa 70% - it is now circa 50%. Lloyds Bank looks closely at the asset managers and not just at the asset.  The equity must have the right people with ‘juice in the deal’.  20% of new lending is from debt funds. There are more borrowing options available but close relationships with the bank manager are a thing of the past.

There is no shortage of foreign capital.  UK Real Estate is still an attractive proposition.  Asian lenders and brokers are active. Some US banks will  lend where the UK clearing banks might not.

The UK is further ahead in the economic cycle than Europe; but the re-emergence of a CMBS market may be a dangerous sign.

Conclusion

We are living in uncertain times.  There is an uneasy equilibrium in the market but there are tough times ahead for retail.  The exponential rise of co-working offices may threatened in any office space downturn.  In the meantime, the effects of the internet boost the industrial sector.

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