Wildbrook CRE Update
The market was surprisingly buoyant in the North West during Q4 2019, with 81 commercial real estate transactions taking place generating a total value in excess of £604m and providing an average weighted yield of 7.00%. This was 50% down in terms of the total value transacted, when compared with Q4 2018, however, with the UK political election this created a pause in the real estate market.
Whilst the number of good quality of assets being brought to market remains key to the investment volumes we will see in H2 2020, the regional industrial investment market remains well sought after by investors who will be under more pressure to deploy cash when opportunities become available. Offices in the Big 6 cities also remain attractive, particularly in Manchester with a 10-year low vacancy rate reached in 2019, from a resilient occupational demand.
Commercial property remains attractive on a relative value basis, and returns are generally still higher than other investment alternatives such as gilts, stocks and shares. Occupier demand remains robust, and this will continue due to the dearth in quality supply.
The word ‘unprecedented’ may soon be used as the word in a drinking game, save for the lack of parties and gatherings to have such fun.
We are however in unprecedented times and the impact of the CV-19 virus cannot be ignored. The UK has so far lost circa 2,500 people to the virus, young and old. It provides uncertainty and ultimately life is more important than business.
The CV-19 pandemic ties in with the 2 year anniversary of Wildbrook CRE. In the 2 year period to date, Wildbrook CRE has been involved in over 20 transactions with a combined total investment value in excess of £55m. Transactions have included the acquisition of Eversheds House and Barnett House in Manchester city centre and numerous industrial investment assets across the North West region.
Since the inception of Wildbrook CRE, the challenges that faced the business have been tough. We had the overlap of Brexit negotiations and the snap UK general election in Q4 2019. Open ended property funds have suspended trading on three occasions since Q1 2018 and now with the coronavirus the uncertainty continues. It is not a new (uncertain) position to be in for the cyclical real estate market and the economy. To note also, at the start of the ‘great recession’ in 2007/2008 we were first introduced to the Apple iPhone. The first Android device followed in 2008 and MySpace was the bedrock of social media. We have moved on since then significantly and the advances have been life changing. We are more intelligent as advisors and investors.
The past performance to get through these challenging situations gives hope to many businesses, with measures by global governments aiming to help stabilise the debt and equity markets (hedging against recession), enabling transactions to still take place.
One of our clients celebrated (quite modestly given the current situation) with a sale of an asset last Friday, which we acquired for the client just 10 months ago. Since the acquisition last year, Wildbrook CRE managed to secure a tenant replacement of better covenant strength and negotiated improved lease terms on behalf of the client. This enabled the client to sell on the asset at a profit.
We will continue to work with our wide range of investor and developer clients on new acquisitions, sales and also provide an asset management service to enhance value.
Capital Economics have predicted a possible 9.4% reduction in UK Commercial Property values, but we have yet to see a precedent for this on the transaction side. It was seen recently in the press that Blackstone acquired the Cara Portfolio from Clearbell, in an investment transaction value of £120m. Something of note was the comment from the seller, Clearbell Capital.
This was the seller commenting that ‘in uncertain times there will be deals that fall away, but if the fundamentals are strong on the underlying assets, the deals will occur‘. At Wildbrook CRE, we certainly agree with this comment. That said, the dollar rate ahead of sterling could prompt a further buying activity from opportunistic American investors such as Blackstone, which continues to aggressively target last-mile distribution assets. At present Wildbrook CRE are working on a couple of existing transactions through to completion. Each asset is fundamentally sound with a good ‘tenant story’ to each. Going forward however, an impact on short term investment volumes may be influenced by the pure practical sides of buying and selling real estate with tenant’s understandably resisting access to their premises from third parties. This should now be a significant opportunity for the constant buzzword ‘PropTech’ industry to step up and assist in this for future situations, so that properties can be seen and inspected virtually.
The market is currently less active than it was just 2 weeks ago and offices are less busy than they were 2 weeks ago. It must be remembered however, that most people in the property sector are in this situation together. Most of us are working from home and being as proactive as possible to create opportunities. At Wildbrook CRE we are in regular contact with old and new contacts discussing a range of innovative approaches in the current market.
Over the last 3-4 years with Brexit, currency impacts and political changes, uncertainty is the new norm. Valuations were affected by uncertainty in a recession and during Brexit in the UK, yet transactions still took place. Even where there may be uncertainty in the market, if investors can take a long-term view then the trends show that they should be rewarded.
It is unknown to say what will happen over the next few months, but it is certain that Wildbrook CRE will be present to advise our clients, old and new, on real estate investment matters.
On a lighter note:
- Neil Higson is starting to recover some of the initial investment on his lightly used dining table, through a short-term desk conversion (no alienation clause required).
- Toilet roll demand is in line with Manchester city centre offices – very strong.
- Mike Ashley (Sports Direct/House of Fraser) has apologised and admitted an error. It appears that Lonsdale bum bags are not an essential item.
- ‘Gary’ the Pug is in wonderland with so much daytime walking, playtime and attention.
- My local village shop is fully exposing the supply and demand theory. The cost of cauliflower and pineapples are 192% and 235% more than Tesco.
- Spring is in full flow – appreciate it.
- Bolton Wanderers are currently on their longest run in terms of undefeated weeks, for a long while. They may even avoid relegation via default!
- To support the NHS and the unbelievable courageous work that they are undertaking, we have set up a #GrowSupportForNHS campaign raising money for the NHS vs COVID-19. The challenge is to not shave and not have a haircut until the pubs in England officially re-open. You can join the team and start fundraising at the following link: https://www.justgiving.com/team/GrowYourSupportForNHS
- Stay Safe.