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Interesting to see a recent article in the EG, regarding the appetite from global property funds to acquire assets in the UK over the next 12 to 18 months, something that resonates with Wildbrook and our recent blog post ‘Outlook for 2024’.

Offices and retail, something that we were positive about in our recent blog post, have also been sectors that are now attracting attention from global funds as they look to seek value in an undervalued UK market.

71% of respondents are keen to look at offices, as the ‘trough’ of the market may now have been met, in terms of re-based rents and also falling capital values.

The recovery and “rebound” suggested in the Alvarez & Marsal survey is similar to the outlook predicted by Wildbrook, and that this rebound will come prior to 2025.

The following were the key findings from the survey:

1. Investor sentiment in real estate investment is improving.
2. Hospitality is the most preferred asset allocation choice, with the tide turning for office space.
3. Investments in developed countries favoured over emerging markets.
4. ESG is increasingly important in real estate strategies.

There is a growing consensus that interest rates have peaked, which is giving investors something to look forward to, following a sluggish 2023. As the impact of higher rates works its way through the market and debt facilities mature, there will of course be a small level of distress seen but nothing like in previous more major events such as the GFC. The balancing act between risk and reward may make investors particularly cautious and discerning in the types of properties and markets they invest in, but the market sentiment in general is now more positive than the previous year which can only be a good thing for all.

We continue to work with clients that are looking to identify new investment acquisition opportunities and finding the sellers is the key to the 2024 market thus far.

The survey by Alvarez & Marsal, ‘An Outlook on Global Real Estate Investment: Finding Opportunities After the Storm’ can be found at the following link – An Outlook on Global Real Estate Investment Finding Opportunities After The Storm 2024.pdf (alvarezandmarsal.com)

In brief, 2023 was a challenging yet successful year for Wildbrook.

The market was skinny and investment levels were at the lowest level since 2009, with signs of outward yield movement continuing in most sectors. Market liquidity has been constrained and in some sectors pricing remains volatile.

However, interest rates will come down at some point (likely Q3 onwards) with the first two quarters potentially remaining a challenge. We cannot see how the government would radically cut rates consecutively this year given that inflation has only recently reduced and stabilised, and still has some way to go towards 3% (2% is the target). Previous radical rate cut exercises have been on the back of more significant events such as the GFC. The total returns for commercial real estate in the UK are forecast for 2024 to be at the highest since 2010, which is a compelling argument to step in to buy mode. This cannot be ignored.

Industrial still looks to be a good buy, albeit a lot of the UK funds are now fully invested in this sector and the development pipeline has reduced, with in turn vacancy rates rising slightly. The fundamentals remain attractive and the diverse tenant base that occupy industrial assets retains their resilience to overcome challenging conditions. Big boxes remain a favourite for funds and overseas buyers, with Asian money and sheer quantity of their savings yet to fully hit the UK and European real estate markets. Multi-let provides a good opportunity. There has been strong rental growth over the past few years since COVID19 and secondary assets are still playing catch up in part to their prime multi-let double digit leased asset counterparts. Supply of new build MLI has been very slow due to increased build and land costs over the past few years, therefore existing stock value and occupier demand remains at a strong level.

There is the obsolescence question around industrial however, and as modern new build specification has changed in recent years to suit ESG requirements of investors, the capital expenditure now required for industrial asset refurbishment has (or should have) increased and needs to be factored in to appraisals accordingly on a case by case basis.

Offices are an interesting bet, and for those wishing to gamble on the sector could be proved right in due course, provided there is a good asset management plan to see through refurbishments at a high specification level and take on immediate letting risk in the short term. The Big 6 Cities remain a favourite, with rental growth prospects looking good in Birmingham and Manchester. Out of town offices need strong USP’s to perform well and must be best in class in the town or city for investors to get excited.

Retail provides attractive returns, and for assets that have stood the test of time and been through the crucible experience, can be a good buy for investors – particularly where they are subject to re-based rents and on medium to long term leases to good covenants. Discount has been applied in general, by the broad brush approach that follows market sentiment, however, for those doing their due diligence I see high street retail and retail warehousing as good options in 2024 – particularly with non-fashion brand tenants. Yield offers significant arbitrage to gilt rates and provided there is a good covenant paying the 4 rent cheques per year, then it should be considered.

At Wildbrook, we have been involved in numerous investment transactions during 2023 including retail warehousing, industrial and logistics, multi-let industrial, mid box industrial and long income retail, roadside and convenience assets. We have been active on both the buy side and the sale side, which has been good for the business.

We look forward to a brighter 2024 and envisage a recovery in this year, ahead of the ‘Survive until 2025’ suggestions by other property companies.

Please do get in touch if you have not already, with your investment requirements for this year and we have a pipeline of sales which we can keep you updated on.

Let’s have a cracker of a year!

Last week Neil Higson attended the Industrial and Logistics Update in Birmingham, hosted by the IPF at the RICS offices at Colmore Row. The update was insightful and provided interesting debate.

In summary, the outlook is cautiously optimistic for the sector and H2 2023 looks to be a promising one.

To coin a phrase or status update from investors over the past 6 months has been, ‘not wanting to catch the falling knife’, providing hesitancy to invest which led to a decline in H2 2022 in comparison to a very hot H1 2022.

2022 was the third best ever year in occupational take up for the industrial sector, but slowed in H2 2022. H1 2022 was the best ever H1 on record. Total take up in amounted to 47.99m sq ft.

Last year was also a game of two halves. Investment sales hit £4.8bn in H1 2022, with ‘just’ £2bn in H2 2022. Capital markets are stabilising now. H1 2023 will see through the latest tranche of transactions to completion and investors will be eagerly anticipating where yields stabilise to, to allow a descent on the market in Q2 through to Q4 2023.

Prime yields fell by up to 100 to 200 bps towards 2023. In comparison, prime yields declined by 300 bps in the global financial crisis. Have we therefore now reached the bottom? Is it time to dust down and re-open the door?

We are all getting immune to the Permacrisis and recent inactivity for some, cannot remain constant. There is lots of ‘dry powder’ looking at real estate as an investment. Capital is returning. Energy, food and inflation forecasts are improving downwards, providing macro stability to a degree. Any recession likely is to be mild.

Consumer confidence is an interesting one. It seems that most consumers are negative about the macroeconomy, but positive about their own personal situation. Occupiers are less negative, compared with developers, agents and investors.

UK industrial and logistics occupational requirements are normalising. H2 2022 requirements imply a take up level of circa 5m sq ft to 9m sq ft per quarter for 2023, therefore, a circa 30m sq ft to 35m sq ft take up forecast in the UK for 2023.

The 10 year vacancy rate in the UK is an average of 7%. Vacancy now in the UK is 3.94%. Vacancy forecasts for a ‘Doomsday’ scenario is set at 7%, whilst the ‘Upside’ scenario is 2%. So, a ‘doomsday’ scenario is similar to the 10 year vacancy rate in the UK (not bad) and the current position and the upside positions are attractive.

Grade A supply is now lower than in 2019/2020. There is 22m sq ft of speculative space being developed for 2023, going in to 2024. Reports suggest that 8m sq ft of this is already pre-let or under offer, whilst 3.9m sq ft is yet to start construction and with no date set.

Forward funding deals were pulled or paused during 2022 due to the rising interest rates and higher cost of debt. Availability of materials and rising build costs were also contributing factors. It took some developers over 40 weeks to have industrial doors delivered to site.

During 2022, 22% of take-up was second hand accommodation, whilst build-to-suit was highest at over 50%. New build speculative was around 15%. There is now less build-to-suit opportunities available and speculative will rise BUT second hand may perform better.

Interestingly, 2022 saw the highest amount of manufacturing related businesses taking space in the UK. Linked to this could be that China labour costs are up by 250% since joining the World Trade Organisation. It is now cheaper to hire a fork lift truck driver in Poland than it is in China. Near shoring, or ‘friend shoring’ is taking place with allies of different countries to source cheaper products and labour where possible. Will manufacturing take up continue to escalate in the UK during 2023/24?

With a lack of stock available in the pipeline to supply the demand, it is likely that in 2023 and through to 2024, second-hand industrial accommodation will be a good performer. This is a sub-sector that should see rental growth due to a supply and demand imbalance and refurbishment of existing assets to progress with ESG requirements from investors, developers and occupiers alike, will lead organically to a rise in rents due to an improving specification.

The lack of new build coming forward will allow the second hand market to benefit. The multi-let sector should also benefit due to the rising build cost for the SME multi-let developments. Rents in the North West for multi-let assets have been achieving double digits, which is an opportunity in the sector when looking at existing multi-let assets that may just require refurbishment and asset management to simply add value.

Industrial land costs in places throughout the UK have since halved or less since H1 2022, which should enable new development to take place, but this needs to be in sync with favourable build costs and likely estimated rental value (ERV) for an opportunity.

Overcoming volatility in the industrial and logistics sector relates to taking on ESG or not, within a development. Aligning an investment strategy to ESG principles will futureproof an asset, and safeguard against headwinds faced going forward in the sector.

It is easy to do nothing, rather than to do something.

The press didn’t help in 2022 nor are they trying in 2023.

The Telegraph came out with one headline, ‘Amazon to shed UK warehouses after worst annual loss on record: Review of operations comes amid major hit to online spending since pandemic’

Just to break this down. To start with, Amazon expanded massively (temporarily) during the pandemic with employees, to cope with the demand from online sales. The ‘1,000’s of jobs to be lost’ are mainly temporary staff and also HR/Admin. The pandemic sales levels have naturally declined now that people have freedom of movement, so not all staff can be retained – but some are and are being re-trained.

What the press fail(ed) to recognise is that the three sites that Amazon are coming out of total 1,162,231 sq ft. However, the two new units that they are moving to total 2,013,766 sq ft. They are taking more space. The new sites are more modern logistics facilities that will equally be more efficient for the Amazon business operation. This to me seems like good news, and not bad news – right?

The North West enjoyed some sizeable transactions during 2022, including the Aviva funding deal of the Iceland Distribution Centre at Omega, Warrington at £90m. Goldman Sachs/Canmoor JV funded the super shed over in Leyland at Connect 6 which will be leased to Victorian Plumbing, for c£70.8m. Greater Manchester Pension Fund were busy acquiring sites at Kingsway Business Park and Middleton, totalling a spend of around £108m. In December, Leftfield Capital acquired the Farmfoods ‘Super W’ shed at Appleton Thorn for £32.1m / 4.96% net initial yield, in return for a 25 year lease term.

To conclude, the overall fundamentals for industrial and logistics remain strong, with structural tailwinds, very low vacancy rates, ongoing demand from third-party logistics operators and now manufacturing related businesses also, and still room for growth.

AOB

Wildbrook continue to advise investor clients on the acquisition and disposal of industrial and logistics assets, with a current pipeline of sales and assets under offer.

We will not be contemplating, nor working a 3 or a 4 day week.

Wildbrook currently have a 100% sale success and are constantly looking for new instructions.

As an independent Commercial Property Investment Agency, we have created a campaign to show our support for local, regional and national independent businesses.

For our seventh interview, we interview Thom Hetherington, founder of Landing Light and Exec Chair of Easel Projects.

Q. How long have you been based in Manchester and how have you seen the city change over the years?

My whole life has been in and around Manchester, from Glossop on its fringes to Angel Meadows at its heart, and I have seen in change beyond comprehension. As a kid I used to come in to town in the late seventies and early eighties, and it felt like a city on its knees, or at least down on its luck. You still had sparks of Mancunian spirit and creativity of course, but the landscape was unremittingly grim – endless derelict plots, some dating back to the blitz, soot-stained buildings, little in the way of animation and energy at street level, and at 5pm it felt like everyone turned the lights off and went home.

You look at it now, with world class culture to the fore, incredible hospitality permeating every nook and cranny, new buildings, indeed entire new districts, much of our heritage buffed up, the bustle of tourists and city centre residents, and trams rattling back and forth, and it’s really quite astounding. It hits me afresh every time I get off the train at Piccadilly. I feel huge pride, optimism and excitement.

Q. In your opinion how important is it to the city to have a strong group of independents…

It is crucially important, for all sorts of reasons. Independents are rooted in their city and committed to their city, and as such they engender pride and identity, and without that we really are lost.

More importantly that sense of place, of terroir, is what drives the visitor economy, as tourists travel to a city for a holiday because they feel they know its distinct character and want to see it and feel it on the streets. That inward investment is a huge driver of hospitality, culture and more besides, and means jobs, skills and money for local residents.

Also, independents tend to be independent of thought, so it is them who take risks, who change things, and who raise standards. This dynamism is vital to any city. Equally, unlike online businesses or national chains, the vast majority of independent’s income tends to get spent locally, not just on wages for their teams but with supply chains, the spending of the owners and investment of profits, and hopefully their commitment to local causes.

Q. Which independent restaurants and bars would you recommend?

It would be hard to know where to stop! The Sparrows, Mana, Erst and Flawd are my top Manchester indies, but I also love 10 Tib Lane, Kala, Neon Tiger, Beeswing, The Jane Eyre, The Black Friar and more. Equally you might want to visit Café Marhaba for the best naans in town! I’d also recommend Sterling or Schofield’s for cocktails, The City Arms on Kennedy St or The Circus for a pint, or Salut for a glass of wine. For breakfasts or coffee, it’s Pollen or Trove for me every time, and pick up a sourdough or some patisserie whilst you’re there.

Away from food and drink I’d urge everyone to visit Private White V.C. and Doherty, Evans and Stott, and I also spend too much time in Fred Aldous, Unitom and Anywhere Out of the World second hand bookshop. Everyone should sign up to become a member of the Portico Library and the Modernist Society too, supporting vital independent organisations that enrich and sustain the city, and contemplate purchasing some new art at Saul Hay or Castlefield Gallery.

Q. What would your perfect day in the city centre entail?

Well my lists above should give you some clues. Get the train into Manchester; brunch at Pollen on Kampus; a stroll up around New Islington, the best promenade in Manchester; a pint in the Edinburgh Castle and maybe lunch at Erst. A wonder down through the Northern quarter, stopping to shop at Anywhere out of the World, Unitom and Fred Aldous; then a Ferris Bueller moment taking in the world class art at Manchester Art Gallery (the chariot race is still a favourite of mine) followed by a poke around the supermarkets of Chinatown, maybe visiting the excellent Blue Whale and grabbing a honey bun at the Wong Wong bakery. Then down to Doherty Evans Stott to pick over their new season items and surely it’s time for dinner? Whilst I think about where to go – so many choices – I’ll be in the bar at 10 Tib Lane, knocking back some oysters.

Q. How do you see the city changing over the coming years?

For the better, always. The city centre is a success story, and is bringing tens of thousands of residents (and their all-important council tax revenue and spend with local businesses) to areas that had been brownfield sites or underutilised plots for generations. I also think the demographic mix is improving, with many older people choosing to retire to the city, as well as families staying put. But more needs to be done to knit the shiny new towers into the surrounding communities, and create a blend which feels sustainable, enjoyable and truly Mancunian.

I desperately hope that we can solve the issues around homelessness, and improve on the grime and anti-social behaviour which still scars some quarters. Manchester is never going to have huge parks slap bang in the city centre, but I think the balance around open spaces is improving – the new Mayfield Park is a delight, Angel Meadows has bangs of potential, and I hope that as the city centre core expands people will start to see existing, historic parks like the wonderful Peel and Hulme Park as part of it. The task is to make Manchester work as it changes from a tight commercial city centre surrounded by run-down hinterlands, to a dynamic mosaic of tens of interlocking districts and neighbourhoods, each with it’s own character.

Fundamentally though I believe Manchester will continue to capably ride the ongoing developments, the wider socio-economic trends, and the waves of people who come to the city to make it their home. I think it will become more international still, and will harness the power of it’s academic campuses, the airport which truly links it to the world, and industries like tech and biosciences where it has considerable strengths and the future surely lies. I’m sure over the next decade it will develop and change beyond all recognition, but it will still remain undeniably Manchester.

Thanks to Thom for a thorough verdict on independent businesses and how they benefit towns and city centres, not just in Manchester, but across the World. A detailed recommendation list too for those looking for inspiration over the festive holiday period!

As an independent Commercial Property Investment Agency, we have created a campaign to show our support for local, regional and national independent businesses.

For our sixth interview, we interview Vikas Shah MBE, CEO of the Swiscot Group and Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy.

Q. How long have you been based in Manchester and how have you seen the city change over the years?

I’ve lived and worked in Manchester for the majority of my life. The city has changed so much in my lifetime; growing up in the 1980s, I saw a city which was coming out of the decline of the industrial era, and facing numerous challenges – today, Manchester is a thriving, cosmopolitan city with a strong cultural scene, which competes against many other European cities as an attractor.

Q. In your opinion how important is it to the city to have a strong group of independents…

The independent sector is critical to the heartbeat of any city. Owner-managed and independent businesses have a different level of passion, a different reason to be, they are more than a profit centre on a corporate balance sheet. Independents are also much more localised, much more designed around the culture of the place and space, and often bring innovation in retail, food and leisure in a way that the generic operators cannot. New York as an example, has thrived on a large amount of independents complementing the global brands, and creating a unique, powerful, personality to the place.

Q. Which independent restaurants and bars would you recommend?

• Rise (Wilmslow) does outstanding coffee!
• Scene (Spinningfields, Manchester) is a brilliant Indian restaurant.
• Greens (Didsbury), is still my favourite restaurant in Manchester.
• Foundation have 3 sites in Manchester, and do outstanding coffee and are great places to work and meet.
• Sip (West Didsbury), incredible independent wine bar.

Q. What would your perfect day in the city centre entail?

My perfect day in the city centre would be something cultural, lots of coffee, lunch & dinner with friends, and just walking and enjoying the architecture and surroundings of this place.

Q. How do you see the city changing over the coming years?

For all the growth, Manchester is still facing challenges around poverty, marginalisation and productivity; in the past few years, my hope is that policies change to really ensure the people left-out of the growth of GM get included, and can join the vibrant future of this remarkable place.

Thanks to Vikas Shah MBE for his insight, strong list of recommendations and support to the independents business community in Manchester and beyond.

As an independent Commercial Property Investment Agency, we begin a campaign over the coming weeks to show our support for local, regional and national independent businesses.

For our fifth interview, we interview Julia Mitchell, Founder and Managing Director of Toast PR.

Q. How long have you been based in Manchester and how have you seen the city change over the years?

I came to Manchester from the Midlands with my agency to live and work in 2008 just in time for the recession! But somehow, without any connections in the city, I was able to build an incredible network here. There’s something about Manchester. Everyone is welcome and as long as you’re prepared to roll your sleeves up and muck in, you’ll be rewarded. I watched the city battle through economic struggles and refind its feet and it’s been an upward trajectory ever since (and the ever-changing skyline is testament to that!)

Q. In your opinion how important is it to the city to have a strong group of independents…

Independent operators are the lifeblood of any city with substance. There are so many homogenous high streets in the UK now – with those shan’t be named red coffee shop chains taking over any empty premises they can find at an alarming rate and it does make me sad. Somehow they don’t evoke the same sense of community that an independent can. It’s all so vanilla. You find the real heart and personality of a city through its independent network of coffee shops, bars and restaurants.

Q. Which independent restaurants and bars would you recommend?

Manchester is teaming with independents, it’s actually really hard to choose! But I’ve always loved Ezra and Gill as a place to brunch, meet and work from. Peru Perdu in the Whitworth Locke Hotel is a hidden gem of a restaurant with arguably the best burger and steak in the city on its menu. And you can’t go wrong with a margarita and pizza from Ramona.

Q. What would your perfect day in the city centre entail?

I walk everywhere (when it’s not raining haha), so a walk from the train station through Ancoats stopping off for a coffee, a stationery shop at Fred Aldous and maybe some vinyl at Piccadilly Records. Followed by a mooch around the shops, maybe taking in some Manchester Art Gallery and dinner and drinks later.

Q. How do you see the city changing over the coming years?

It’s just getting better and better and I can only see that improving. There’s some serious investment going on in the centre right now and the public realm is slowly improving. Manchester is never to be underestimated and I hope it continues to evolve and keep us all guessing about what it will do next.

Thanks to Julia Mitchell for this insight and support to the independents business community.

As an independent Commercial Property Investment Agency, we begin a campaign over the coming weeks to show our support for local, regional and national independent businesses.

For our fourth interview, we interview Chris Maguire, Executive Editor of Business Cloud and co-host on the ‘Northern Spin‘ podcast.

Q: How long have you been based in Manchester and how have you seen the city change over the years?

A: 10 years. Manchester is unrecognisable from the city I arrived in back in 2012. There’s been so much development taking place I used to count the number of cranes on the skyline.

Q: In your opinion how important is it to the city to have a strong group of independents…

A: It’s not the shiny buildings that make Manchester what it is or the plush retail chains but rather the mix of independent shops, cafes, restaurants and bars that populate the city centre. 

Q: Which independent restaurants and bars would you recommend?

A: I’m terrible for names but Northern Quarter is packed with quirky cafes. I always enjoy the hot chocolate at Pot Kettle Black inside Barton Arcade

Q: What would your perfect day in the city centre entail?

A: Any day when it isn’t raining and the roads aren’t rammed. I like walking and  if you walk from Ancoats, to Northern Quarter, to Spinningfields to First Street, you get to appreciate the variety in the city. One of the joys of walking round Manchester is still finding buildings or streets for the first time.

Q. How do you see the city changing over the coming years?

A: I think the skyline will be unrecognisable 10 years from now. I’m interested to see the St Michael’s Manchester development.

Thanks to Chris Maguire for his insight and support to the independents business community.

As an independent Commercial Property Investment Agency, we begin a campaign over the coming weeks to show our support for local, regional and national independent businesses.

For our third interview, we interview Caroline Dyer, Director of ‘Heard Storytelling‘, and former Head of Fundraising at Eat Well MCR and Fundraising and Partnerships Manager at Action Against Hunger.

How long have you been based in Manchester and how have you seen the city change over the years?

I moved to Manchester 6 years ago and the change to the city has been significant in such a short space of time; the urban landscape, politics, public infrastructure, economics. We have a mayor with political powers now. There are skyscrapers. The diversity of the city is shifting as emerging and developing markets make Manchester their home.  We can’t walk past the Manchester arena without remembering. Our Emmeline was erected. Buses are cheaper, trams are more expensive.

Something that’s brilliant to see is the rise in independent hospitality businesses. When I first moved to Manchester from London I struggled to find the rich variety and quality that I was used to in London – now, we’re spoilt for choice! Something which has stayed constant thoughout this change has been the community spirit of the scene.

In your opinion how important is it to the city to have a strong group of independents…

Independent thinkers and creatives are imperative to the spirit and rich tapestry of any city. One thing I noticed when I moved here was just how passionate people are about telling you their favourite part of Mancunian history. I listen to people’s stories for a living, so it’s a joy to listen to what lights people up about their city. When people share their favourite moment from history, it gives an insight into what’s important to that individual. If I was to collectively summarise that message from Mancunians it would be independent thinking, risk taking, and the importance of community. Independents IS Manchester, I think the city would be lost without them.

Which independent restaurants and bars would you recommend? 

I love sitting in San Juan’s in Chorlton; the atmosphere is great and they politely don’t laugh at me practising my Spanish on them. I go there so often it feels like an episode of Cheers (Salut?!). City centre go to places: Schofields, Siam Smiles, The Sparrows, 10 Tib Lane, The Alan, Ducie Street Warehouse.

What would your perfect day in the city centre entail? 

Yoga at one of my favourite yoga studios. Breakfast at Pollen. Working on something super creative with my company Heard Storytelling. Lunch at Tast sat outside in the sunshine on Kings Street, (tricking myself into thinking I’m in Spain).

Enjoy a museum, gallery or check out what’s on at HOME. Dinner at one of my favourite restaurants (see recommendations above!) then after… Well, I love a dance so let’s hope something like Homoelectric is on at Hidden to complete my perfect day!

How do you see the city changing over the coming years?

The city will continue to expand outwards and upwards and I really hope it’s done in a thoughtful way. I hope community and social value is considered in that process and it’s not just a tick box exercise.  I’d love to see the city become greener, more inclusive and make spaces for all people to thrive. I hope the city continues to create great history and stories for generations ahead to be proud of Manchester now, not just Manchester past.

Thanks to Caroline Dyer for this insight and wonderful support to the independents business community. Massive respect also for the amazing and relentless charity work that Caroline has done over the years. 

As an independent Commercial Property Investment Agency, we begin a campaign over the coming weeks to show our support for local, regional and national independent businesses.

For our second interview, we interview Michael Taylor, a recent political communication officer for the Labour Party in Greater Manchester and recently announced as TheBusinessDesk.com new North West Editor. Michael also co-hosts the ‘Northern Spin’ political podcast with another business editor, Chris Maguire, to give a greater voice to the North.

Q. How long have you been based in Manchester, and how have you seen the city change over the years?

I came here to University in 1985-88, moved back in 2000 and have been here ever since. The city has changed massively yet it still has a core of “edgy cool” that has sustained itself throughout that time.

Q. In your opinion how important is it to the city to have a strong group of independents…

Yes, I agree, it’s absolutely vital that retail, restaurants, hotels, clubs, venues and service businesses are rooted in the character of the city. It’s what makes the city distinctive and gives it character. That said, international brands and familiar names is a vote of confidence in the city too. Case in point is Hawksmoor, who serve the best steak in town, and keep the standards high, and Bundobust.

Q. Which independent restaurants and bars would you recommend?

So I do a regular instagram feature called ‘Lunch of the Month’ and though some winners have been from Stockport where I work a lot, the absolute Manchester favourites have been Koffee Pot, Cafe Mahabara, Viet Shack, R&V sandwich shop, Philpotts, Hip Hop Chip Shop, Buzzrocks in Hulme, the Venus cafe, Kurdistan in Rusholme and at the quality end of the market Nammi on New York Street.

Q. What would your perfect day in the city centre entail?

One of my best ever days in the city was showing a mate from Australia around. We had a mooch around the Northern Quarter, Piccadilly Records, Oi Polloi, Bags of Flavour, lunch at a rice and three, took in an author talk at the Central Library, John Rylands Library, Drinks at Home and the Anthony Burgess Centre.

Q. How do you see the city changing over the coming years?

For the better hopefully, but we need more houses and facilities and do something about the hell hole that is Piccadilly Gardens, the Britannia Hotel and a better gateway into the city than the ramp from Piccadilly currently offers.

Thanks to Michael Taylor for this brilliant insight and wonderful support to the independents business community, and for his passion for all things Northern.

As an independent Commercial Property Investment Agency, we begin a campaign over the coming weeks to show our support for local, regional and national independent businesses.

For our first interview, we interview Lisa Morton, the CEO / Director at Roland Dransfield PR and Purposeful Podcasts.

Q. How long have you been based in Manchester and how have you seen the city change over the years?

I’ve been in Manchester all my life and started my career here. When I came back here after Uni, all the buildings were black, and you couldn’t find anywhere but a club to go to after 10pm on a weekday. You couldn’t get anything to eat on a Sunday in the city centre. It was a city that was still stuck in the post-industrial age and unless you were die-hard Manc it wasn’t very attractive to look at. The IRA bomb in 1996 started its metamorphosis and the city has continued to evolve, add new vibrant neighbourhoods, create an incredible blend of music, culture, sport, business, and hospitality. We are firmly on the global map as one of the most liveable cities in the world and we even have our first new public park in over 100 years.

Q. In your opinion how important is it to the city to have a strong group of independents…

Very important! I remember a time when Manchester was full of anodyne retail and leisure chain brands. Independents give the city its quirky, eclectic feel. Independent retail and leisure operators are passionate and invested in their immediate communities, the people who support them and the wider city as a visitor and tourist destination. They make the place come to life.

Q. Which independent restaurants and bars would you recommend?

Ezra and Gill, Rudy’s, Evuna, El Capo, Federal, El Gato, Grub Manchester, Elnecot, Salvis, Schofield’s Bar, Jane Eyre, The Abercrombie, The Nag’s Head, City Road Inn.

Q. What would your perfect day in the city centre entail?

Barry’s Bootcamp, Federal or Ezra and Gill for brunch, a walk round Ancoats and New Islington, buy some bread at Pollen, see if there’s an exhibition at one of the galleries or at Home, a bit of shopping, cocktails at Schofields, a gig ideally at Albert Hall and then crash at Stock Exchange Hotel!

Q. How do you see the city changing over the coming years?

I think we’ll see more people coming to live in the city centre and its neighbourhoods – and a mix of demographics as older people downsize in the suburbs and take residence in the centre – and more young families choosing to stay as we build schools and healthcare provision.

The city will move out as we develop the fringes but hopefully there will be more provision for good quality social and affordable housing so that this city still belongs to all of us.

Thanks to Lisa Morton for this brilliant insight and wonderful support to the independents business community.

In February 2022, the interest rate rise to 0.50% seemed dramatic yet underwhelming in comparison to historical rates such as in February 2000, when rates were set at 6.00%.

The current interest rate and with the predicted rate rises over the next 6 to 12 months remain very low in comparison to historic levels, but cannot be ignored.

The commercial property market started sluggish in Q1 2022 in comparison to Q4 2021, with a reduction in the number of transactions by around 50% and the average weighted yield increasing/softening from 5.32% (Q4 2021) to 6.73% in Q1 2022.

The transactional value in H1 2022 is up on H1 2021, despite the number of transactions being down significantly. The average weighted yield sharpened slightly in H1 2022, when compared to H1 2021.

Data for H1 2022 in the North West is shown below:

The H1 2022 investment statistics for the North West appears healthy, despite the slower Q1, in comparison to H1 2021, as shown below:

So, despite the speed of the interest rate hikes in 2022 from 0.50% in February through to 1.00% in May, 1.25% in June and 1.75% in August, the knock on effect has yet to be implemented through the investment market evidence. This is not to say that it will not, and with a pending 0.50% hike forecast in September, taking interest rates to 2.25%, this may start to impact Q3 and Q4 2022 transactional performance in the region and the wider country.

When reviewing the H1 2022 data for the North West investment market, the retail sector was the highest performing (£593.49m) when comparing the transactional values across the other main commercial sectors. This however was distorted, by the significant acquisition of Cheshire Oaks Retail Outlet at Ellesmere Port by LaSalle, at around £472m.

Personal finances and consumer spending levels may be set to drop with the rising cost of living, but we expect that higher yielding yet stable prime retail assets will provide a hedge against the rising costs of finance for some investors.

The sharper yields remain in the industrial sector, at an average weighted yield of 5.20% across 39 transactions. The notable transaction was the GMPF forward funding of Monarch 330, a development of a 328,000 sq ft warehouse project at Kingsway Business Park, Rochdale for £40m. GMPF continued their New Year healthy appetite with the acquisition of the 651,917 sq ft Vita Group’s Middleton HQ for £20.25m.

The industrial sector arguably looks to be the most resilient for the remainder of the year, with occupational take up breaking records and leading to an ever thinning supply of accommodation. With rising build costs, lag in planning and increasing prime land values to around £2.2m per acre, the investor appetite remains relatively strong for those rare available good quality industrial and logistics opportunities.

Offices will be an interesting sector over the coming months. M&G Real Estate, Schroders, Mayfair Capital, Forma Real Estate and Grosvenor were plucky buyers in H1 2022, and with in excess of £380m of office assets brought to market in the North West during H1 2022, it will be interesting to see which assets are traded over Q3 and Q4 2022 and at what levels. Possibly the winter fuel hikes could lead to some employees returning to the office for real wellness and to add more activity to office buildings in the region.

The ’uber’ prime investment assets that have traded at sub 5% are likely to be pushed out, if anything just by a negotiating tactic by cash buyers uninfluenced by lending and interest rates and lower savings accounts. Bond levels have increased therefore making the circa 3% assets look too vanilla right now, unless there is a positive reversionary uplift available to an asset.

Real estate however does provide a good investment return as a tangible asset, and by taking a medium to longer term hold strategy then rental growth or capital growth (or both) can be achieved.

Wildbrook CRE decided to ask some ‘friendly peers’ in the property industry what their thoughts are for the remainder of 2022, and here’s what they say:

Jason Baggaley (Deputy head of Real Estate Value Add Funds at ABRDN) – “The second half of 2022 is likely to provide opportunities for equity investors. In a period of rapid change and market uncertainty, good quality advice from experienced advisors will be essential to exploit value opportunities.”

Julian Carey (Managing Director of Industrials REIT) – “The investment market will be softer in H2 as investors soak up higher interest rates and risk premiums on commercial property. Good quality assets will remain liquid, but wider economic uncertainty is likely to impact upon secondary and tertiary asset values where perceived downside risk is greater. Occupier demand for industrial property remains robust and is likely to support asset values in the short to medium term.”

David Lathwood (CEO of Pitalia Real Estate) – “ For the first time in a while, the industry will come back from the summer break not really knowing what will happen next. We can expect  a further softening of yields across the key sectors (with the exclusion of BTR), but the extent of this shift is hard to calculate. Some of it has already been priced in, but with interest rates likely to move again by 50bps before the end of the year, we expect some surprises. In real estate, confidence is everything and debt based investors will find it tricky in H2 2022 and H1 2023”.

Alex Russell (MD of Property Alliance) – “It has been an understandably slow start to H2 2022 as investors are sat on cash to invest, but are using summer as an excuse to take stock and wait to pounce. We expect a flurry of activity in Q4 2022 as there will be an inevitable correction in pricing in both the office and industrial sectors, with residential (particularly BTR) continuing to thrive.”

Mark Hawthorn (CEO of Landmark Group) – “Rates are rising, prices will soften – lots against the market and not much for. This also means buying opportunities for the more experienced operators.”

Phil Mayall (Regional Director at Muse and ECF Board Director) – “We are undoubtedly moving in to a period of significant headwinds. However, experience dictates that now more than ever is the time to hold your nerve and prepare for the time when the headwinds settle.”

Guy Butler (Co-Founder of Glenbrook Property) – “H1 has seen limited stock buying opportunities, and those that did come to market, were generally overpriced in our opinion. The transition in to H2 saw more stock arrive on the market, and some of it pricing in some value, and whilst we think this will continue to end 2022 and in to 2023, a lot of the market are telling us the market will return in September, and the back to school feeling some people have.”

The following next 4 months from the end of August until the end of 2022 will be an interesting period of time. Sales may be stalled due to rising debt costs, so it is unclear if the ‘opportunities’ will arise in the numbers that are hoped for. The post summer period is always a good one as there is then just one target ahead (Christmas) to ‘get things done’ by.

There is clear reason for yield softening in certain sectors, with finance cost rises, operational cost rises and the decrease in overall consumer confidence. ESG credentials are key to decision making on assets now and with the upcoming April 2023 EPC requirements this adds to the ‘E’ of the ESG as possible negotiating for developers and investors alike over the next 6 months.

At present it feels like summer has been the reasonable alibi for investors to stand at the edge of the pool and not dip their toe into the water to check the temperature, but in fact there are all of the above variables to create that ambiguous standing position.

Assessing the fundamentals of real estate continues to be the heartbeat of most investment decisions and this should always remain. At Wildbrook we look to undertake a forensic level of due diligence to fully understand the real estate and the tenant(s) that make up an investment opportunity. Over the remainder of 2022 this will be no different from our perspective, and will be so important for our clients.

We aim to add value for our loyal investor clients, which in turn will bring repeat business and longevity in what we do.

Please feel free to get in touch to discuss your requirements to acquire or sell commercial real estate, or to have a general catch up. Always available.

Recently a trip was made to the United States, to see friends for some ‘down time’ over the Easter holiday period. Seattle and Vancouver were visited and during the trip, the notepad was out!

Seattle was an interesting place and has received a lot of attention with numerous global tech firms locating in the city, notably Amazon, Microsoft and Meta (Facebook). Due to this it has certainly increased the cost of living.

The suburbs of Seattle are similar to, with numerous out of town retail and leisure schemes, but much more mixed use than general retail parks in the UK. Occupiers on the retail parks (could be described as a district centre) included A1 retail, but then lots of alternative uses and services such as dentists, hairdressers, nail bars, doctors, vets and medical centres. It then seemed that the town and village centres were generally occupied by F&B users and with less retail offering.

There were drive thru assets everywhere, of varying uses, from several different coffee shop operators which varied from the orthodox Starbucks (originated in Seattle) right through to individual ‘Espresso Express’ units which were comparable to a garden shed size half the size of a Costa kiosk drive up unit. Other drive thru uses included a Drive Thru ATM/Bank, where you could drive up and withdraw cash or deposit cash and cheques, in addition to drive up donuts and also – and incredibly a ‘drive thru prayers’ service on a local church car park. Convenience really is key on the West Coast!

Seattle city itself is very impressive and as driving in along the ‘freeway’ the skyline is exciting, with the addition of the large soccer and football stadium and also the baseball stadium. The stand-out bit of Seattle centre was Pike Place Market, Seattle’s original farmers market and the centre of locally sourced, artisan and specialty foods. It was very much a Borough Market on steroids. The fish throwing at the fishmongers and the array of food types, flowers and stalls was almost magical. It was certainly the catalyst for all of the other retail and leisure units in and around the market, including the original Starbucks store where a Pistachio Latte was sampled (when in Rome..).

Whilst in Seattle centre, a visit was made to the Amazon Spheres, at the Amazon HQ in the city centre. The Amazon Spheres sit within the square, surrounded by a few of the Amazon HQ buildings which employ around 45,000 ‘seattleites’. The spheres were amazing to see, what a great bit of design and architecture.

There was also the Amazon Go store, the first one that we have entered. It was different, and features the world’s most advanced shopping technology. For those that may not be aware, the Amazon Go stores are cashier-less, thus partially automated, with customers able to purchase products without being checked out by a cashier or using a self-checkout station. It did feel odd seeing no staff and folk coming and going, but it seemed to work.

The trip was complete with a visit to Prologis 6050, the ‘first in its kind’ revolutionary multi storey fulfilment centre in the USA – the possible future of industrial logistics.

Prologis Georgetown Crossroads is a three-story, 590,000 sq ft multi-storey industrial logistics warehouse in Seattle.

The unit features Level 1 (239,029 sq ft) with 62 dock high doors and 28’ clear height. Level 2 (170,311 sq ft) with 38 dock high doors and 2 ground level doors and 24’ clear height. Level 3 (180,255 sq ft) ‘makers space’ suitable for light manufacturing, production and offices.

There are truck ramps leading to loading docks on the second level and a third floor, served via forklift accessible freight and passenger elevators, for lighter-scale warehouse operations.

The unit will be occupied by Home Depot and Amazon. All in all, pretty damn cool!

A virtual tour can be made here: http://prologisgeorgetown.com/experience-vr/

Vancouver was a really good city and it would be a miss if the $17.50 (c£13) pint of IPA was not mentioned. Vancouver, similar to Seattle, is a green city and the mix of the urban with the greenspace and water was fantastic.

Vancouver in particular seemed to have lots of trees within multi-storey buildings (offices and residential) so the trees were planted on balconies and outdoor entertainment areas and also at entrances. There were basketball courts installed in the middle of an office square (owned by Oxford Properties) and the CBD was tight which had a good feeling to it, but being well positioned close to Gastown, an equivalent to the Northern Quarter/Ancoats and Shoreditch. WeWork, Spaces et al were all in occupation and some real big hitter firms had large office buildings in both Seattle and Vancouver.

Back to blighty…

Q1 2022 Investment Review – North West.

Q1 2022 was a relatively subdued quarter in terms of investment values transacted in the North West region. There was a total of 51 transactions totalling around £441m and providing a weighted yield of 6.77%.

This was the third highest lowest quarter performance over the past 5 years (2019 was lowest with £306m).
The most active sector in terms of largest transaction volume, was the alternative sector, totalling £141.20m in investment values. This was distorted however by two large BTR transactions, being the Mayfair Capital (c/o Swiss Life) acquisition of the 270-apartment scheme ‘Duet’ from Moorfield Group and Glenbrook for £73.85m, and also the forward funding by Pollen Street Capital at Victoria House, Manchester, for £44m.

Unsurprisingly, the industrial sector transacted in excess of £133m across 13 deals. The notable transaction was the GMPF forward funding of Monarch 330, a development of a 328,000 sq ft warehouse project at Kingsway Business Park, Rochdale. GMPF continued their New Year healthy appetite with the acquisition of the 651,917 sq ft Vita Group’s Middleton HQ for £20.25m. The units generate a low average passing rent of £2.37 per sq ft, and benefits from annual upward only uncapped RPI rent reviews.

The third best performer in Q1 2022 was Offices. The acquisition of Canada House, by Grosvenor, was the notable office transaction in this quarter. Being sold out of the Albert Estate portfolio by Kinrise. The bulk of the office transactions were in Manchester and the fringe, with a couple of investment transactions completing in Sale, with Dalton House (sold by Bruntwood) being sold for £4.225m – a reduction of £625,000 from the previous 2016 quoting price.

Retail was the lowest performing sector in Q1 2022, with two non-core located assets being acquired as the notable transactions. The M&S investment in Prestwich was acquired for £9.85m, almost £450,000 above the quoting price. The asset is the dominant store in Prestwich and has circa 5.5 years unexpired at a passing rent of £24 per sq ft overall. The other asset to be acquired was Central Retail Park, Bolton, that was available at £7.4m which reflects an 8.45% net initial yield, but provided 20,262 sq ft of vacancy that can be re-let to add value.

On the national basis, the RICS Commercial Property Market Survey Q1 2022 suggests that on the investment side of the market, there was an increase in buyer enquiries at the all property level and this increase in buyer enquiries is the strongest figure posted since Q3 2015. Moreover, for the first time since 2017, the investment enquiries indicator is now in positive territory across each of the three traditional market sectors (office, industrial and retail), albeit only marginally so for retail.

Capital value expectations for the year ahead are revised higher (or became less negative) in both prime and secondary portions of the office and retail markets.

For prime retail, the latest net balance of zero represents the first non-negative return in almost five years. For the prime office sector, respondents expect a rise in capital values over the next twelve months. Meanwhile, although sentiment regarding the twelve-month capital value outlook across the industrial sector remains robust, the latest net balances edged down slightly from recent highs.

Turning to the alternative sectors tracked in the survey results, respondents envisage a firmly positive trend in both rents and capital values for data centres, multifamily residential, and aged care facilities over the year ahead.

Furthermore, the outlook is also positive, albeit to a slightly more moderate degree, for student housing and hotels. With respect to the latter, respondents now envisage a more consistent recovery progressing over the next twelve months, having been hit hard by the pandemic since early 2020.

Wildbrook experienced a strong Q1 2022, coming out of 2021 with a pipeline of investment acquisitions and disposals to complete over the coming quarter. We completed on a dual industrial investment transaction (450,000 sq ft) acting for Urban Logistics REIT, and with further industrial and secure income assets currently under offer.

Interest rates, inflation and the Ukraine war will all have an impact on H2 2022, with further interest rate hikes forecast for the year ahead. The ‘Great Resignation’ may also impact upon the economy with less real wage and disposable incomes falling. Manchester based restaurant bookings seem to be down at present and car manufacturing will continue to be hit by transport and production problems, but also energy hikes will affect manufacturing in general.

Lots of headwinds to face and a weak growth forecast, but we are excited about the next quarter and the second half of 2022, with an attractive pipeline but also the hunger to create new opportunities with investors and agents alike.

The cost of a pint of ale remains lower in the UK right now too.

The near end of 2021.

It has been an interesting year. Tough, challenging, yet exciting and a buoyant investment market.

After starting the year in a lockdown it was difficult to envisage starting the following year in the same way – albeit a lockdown or circuit breaker has not formally been announced, it feels like it is heading in that direction.

In a festive manner, it is useful to look at the Past, Present and the Future, for commercial real estate investment in the UK. Salient trends are as follows:

PAST

During 2020, the year was full of lockdowns and uncertainty. Despite this, Blackstone acquired the Iq Student Housing portfolio, for £4.7bn in February, pre-lockdown. Blackstone acquired again in February on behalf of the Mileway platform, with the acquisition of the Hansteen portfolio, comprising approximately 250 industrial estates for a total value of £500m, which reflected a 7.50% yield. This now looks like excellent value.

As we entered lockdown measures in March 2020, a private Qatari investor acquired The Ritz, Piccadilly hotel building for £700m. AXA acquired the ‘Dolphin Portfolio’ the largest single private residential complex in the UK, comprising 1,233 units on a 7.5 acre site in London. This was acquired for £850m in September 2020.

It seems that ‘beds and sheds’ were still the investor favourite.

A breakdown analysis of the 2020 UK transactions is as follows:

The most active sector was industrial, followed by offices. The total value of transactions was highest with offices – despite the ‘death of the workplace’. At just shy of a 6% average weighted yield, retail (which does include retail warehousing) seemed to provide the most attractive returns.

PRESENT

On the 6^th January, England entered a third national lockdown. This wasn’t the best start to the year after the previous stop-start year.

However, the year progressed in a positive manner following the start and is looking to end on a high – in terms of the overall market performance.

A breakdown analysis of the 2021 UK transactions is as follows:

The most active sector was industrial, and this sector also provided an increase of £5.5bn of added transactional values in comparison to 2020 and also a sharp decrease in the average weighted yield down from 5.18% (2020) to 4.43%.

The weighted yield for offices also came in (despite the ‘death of the workplace’) and the total value increased from 2020 to 2021 figures by around £3.5bn.

An interesting sector was retail in 2021. The total value of investment transactions increased by £2bn and the average weighted yield softened further out to 6.23% in 2021. Leisure was also pushed out to an average weighted yield of 6.41%, from 4.79% in 2020. The number of transactions however increased from 2020 leisure volumes and the total value of transactions was also up from 2020.

FUTURE

Whilst nobody has a crystal ball, this year will also be dictated in part by the latest Omicron outbreak. Will the country enter lockdown restrictions and if so for how long?

Whilst the various strains may continue to intermittently disrupt the market and the economy, this is short term. Unless an asset is being acquired for the purposes of a ‘flip’, then commercial real estate investment is often a medium to long term hold.

What are the ‘value picks’ for 2021?

• Offices – office assets are an obvious value pick. The arbitrage between prime industrial and UK regional offices is wide open. Offices in major regional cities (Multi-let, 5 year WAULT) average 5.75%, however, yields have pushed out towards double digit yields in some locations during 2021. Compared to prime industrial yields at 3.00%, this provides a good attractive option. ESG credentials are of interest to investors and the provision of flexibility within office buildings is desirable, to offer conventional office floor plates but also the option of flexible/collaborative working configuration is favoured. Google are taking 1.3 million square feet at Hudson Square, in New York, which is the centrepiece of the company’s “Googleplex” master plan that will encompass a grand total of 1.7 million square feet across three buildings. The HMRC will move in 9,000 employees in to their 460,000 sq ft Pilgrim Quarter office building in the North East, for the biggest letting in the region since Just Eat signed a lease at Rainton House in Sunderland, taking 217,339 sq ft in August 2021. Facebook have agreed to lease 312,000 sq ft of office space at 1 Triton Square, London. Allen and Overy have agreed to take 254,000 sqft office space on a pre-let with the intention of an early 2027 move date at 1-2 Broadgate, London. Recently, the DWP have signed the lease to take 215,000 sq ft at Talbot Gateway, Blackpool, for a term of 25 years with a proposed move-in date of H2 2022. Can Facebook, Google, HMRC, DWP and Allen and Overy all be wrong? We can’t work from home the rest of our careers – can we?

• Retail – E-commerce has been the biggest threat to bricks and mortar over the past 10 years and this is not changing any time soon. However, town centres are being re-purposed to integrate mixed use development. The high street in general has been diluted, or will be diluted, for it to perform better. Suburban retail has performed well during the lockdown restrictions and neighbourhood retail parades have shown resilience – which shouldn’t change. The butcher, baker and candlestick maker has often been replaced in part by a craft ale bar, coffee shop and artisan food shops and independent restaurants. High street retail in locations with limited supply/market competition are attractive, in addition to retail in tourist locations and strong university towns and cities. Then there is retail warehousing. This has well and truly kicked off in 2021 and will continue to perform well. Retail warehousing is popular due to the (general) generous free car parking provision, opportunity to allow for ‘click and collect’ platform occupiers, low site density allowing for additional development and the potential for alternative uses such as conversion to industrial or develop/re-develop for residential in parts or on the whole. Yields have however compressed very quickly in the retail warehousing sector in the past 12 months by up to 250 bps, so it is the secondary and tertiary locations – with good fundamentals – that can be acquired at an attractive level. The high street should also be considered, with each asset and location to be treated individually on their own merit. Long leases of 10 years can still be achieved, and the stand out occupiers will be highlighted post-eviction moratorium on the 25^th March 2022, with those still standing and expanding to be a clear favourite for investors.

• Industrial and Logistics – this remains a stand out sector and will continue to thrive during 2022. There remains an overall under supply and any pipeline is often pre-let or at least 50% – 75% pre-let. Rental growth is still likely due to the supply and demand imbalance, however, it is important not to use a ‘broad-brush’ approach to assets. Not every industrial occupier can pay an Amazon level of rent, because the Amazon rents can be absorbed in their profitability and operational plan. A welder, car mechanic or microbrewery cannot all pay a rental increase that reflects a doubling (or more) in rent, as this will end in a negative outcome for both landlord and tenant – and we do not want to see a microbrewer absorbing a massive hike in rent, through a subsequent rise in the cost of a pint! Optimistic investment agents love to quote hot ERV evidence on a comprehensive PDF brochure, but it needs to be put in to context. Due diligence is key in this sector right now, as the market is changing each week and month, in terms of net effective rents and also the evolving high-tech build specification. If an investor gets it right, industrial and logistics appears to be a safe bet.

At Wildbrook CRE, we have enjoyed 2021 and look forward to 2022. In March 2022, it will be a 4 year anniversary of the business start date, and it has been an interesting 4 years with the ending of Brexit, change in Prime Minister, and an unforeseen global pandemic.

We wish all of our clients and fellow property professionals a Merry Christmas, but most importantly a healthy 2022.

Stay safe.

Neil Higson.

Reasons to be cheerful – Industrial and Logistics.

Q2 2021 was a remarkable quarter for the industrial and logistics sector in the North West. The evidence in Q2 2021 shows that the quarter was the strongest Q2 since 2016, and the second strongest for over 10 years.

In total during Q2 2021, there were 36 recorded investment transactions, totalling in excess of £177m. This provided an average weighted yield of 4.65%, the lowest/sharpest average weighted yield in the sector in the North West on record.

Of the North West transactions in Q2 2021, the stand out deal was the sale of the Royal Mail delivery office by Aviva’s Lime Property Fund, to a notable Manchester based investor developer for £45m. This sale represented a 2.75% net initial yield, with a lease in place to the Royal Mail until April 2030. The asset provides good solid income for a further 8.75 years and offers attractive re-development prospects in the longer term.

Other notable transactions include Haworth Group’s acquisition of Towngate Business Park in Widnes and London Metric’s acquisition of 910 Europa Boulevard in Warrington.

Wildbrook CRE have been active in the sector with various off-market acquisitions on behalf of clients. The view of the sector is that demand will continue from both occupiers and investors. Due to the dearth in supply of good quality stock along with the sector now being a relative safe haven for investors to acquire in, industrial and logistics will continue to thrive in both the single-let and multi-let industrial markets.

There is also the lack of building materials in the sector, that has led to lead times on projects being put back by months as opposed to weeks. Apparently if you order aluminium cladding now the lead time has increased from a few months, to Q2 2022 – that’s 9 months! Warehousing is the commercial asset class most affected by this squeeze on construction, adding that the sector was competing for limited resources with residential development and large infrastructure projects such as HS2.

Appetite for construction is certainly there, but that the closure of a major port in China, the blockage of the Suez Canal earlier this year, the Covid-19 pandemic and the Brexit-induced labour shortage have all combined to create a bottleneck in British construction.

This will add more spice to the supply and demand imbalance for the industrial and logistics sector, likely to allow for rental growth for the prime assets but also a continuing rise in capital values and yield compression. The sector will continue to be hot for all investors, but maybe with a development lag forecast, it could be time to focus a little attention on alternative sectors that provide both security of income but also a yield arbitrage to make it attractive enough to do so.

Silence can be golden – Offices.

It seems that offices are back at it, even if office workers are not yet fully back to the office. So, don’t fully believe the (sometimes negative) hype.

In the North West during Q2 2021, there were 15 recorded investment transactions, totalling in excess of £184m. This provided an average weighted yield of 5.78%, the lowest/sharpest average weighted yield in the North West since 2014.

In 2016 there was the Brexit Referendum and an ominous outlook at the time for UK offices, where it was reported that major employers would decant in to European locations. However, despite the hype, the majority of occupiers remained and the sector gained strength (that generally went unnoticed in the press).

Details are shown below, in relation to the office investment activity pre and post the Brexit referendum:

Of the North West transactions in Q2 2021, the stand out deal was the acquisition of No.8 First Street by Ashtrom Properties, acquired for £82m and representing a 5.60% net initial yield. No.8 First Street is a multi-let office building, with tenants including Gazprom, Willis Towers Watson and WSP.

The pandemic has more elbow room at the boardroom table compared to Brexit, but offices will remain the place of work for most, as homeworking becomes lonely, lacklustre and the ability to maintain professionalism becomes questionable. At 12 months following the Brexit referendum date (and still without a Brexit agreement going in to H2 2017), the value of North West transactions in H2 2017 surpassed the H2 2016 by double the amount of investment value – ‘despite Brexit’.

Previously, in our Wildbrook CRE Spring Newsletter to clients, we highlighted that so far in 2021 key office transactions include No.8 First Street and Windmill Green. The two transactions total in excess of £110m of value. We highlighted that both offer modern workplace environments, with First Street offering a vibrant neighbourhood zone and Windmill Green being more centrally located but offering strong ESG credentials and rooftop terracing for wellbeing, networking, social etc, which also includes an apiary (beehives). Both provide better spaces and amenities than what you would get from working at home.

Take a look at Hyphen and Bloc in Manchester, for examples. Aside from the Grade A office work space provided, Hyphen also offers an on-site premium coffee shop, lifestyle gym and wellness room. Bloc includes Biophilia design throughout and offers a state of the art yoga studio, independent coffee shop, cinema room and sleep pods.

This specification and personal approach is key to the office sector moving forward.

Neil Higson of Wildbrook CRE was a guest speaker at the Insider North West ‘Future Workplaces’ roundtable event in June, where Rob Morton of CEG suggested, “I don’t think it’s the death of the office, I think it’s the death of the mediocre office”.

The novelty for employees at present is working from home, whereas office landlords and employers/tenants need to create an environment in which the novelty is to come in to the office.

We believe that there is value at present in the office investment market, in a short term window of opportunity now due to an imbalanced investor appetite. By H1 2022, we believe that most office sector workers will be back in the office and by H2 2022 there will be an element of normality in the sector – albeit the hybrid model will remain as a legacy from the pandemic but will be altered accordingly by way of business sectors. The RICS Q2 Commercial Market Survey also backs this up to an extent, highlighting that demand appears to be stabilising across the office sector and feedback turns broadly neutral regarding office demand. The Central London prime office market now displays stable rental growth expectations, marking a significant turnaround from the deeply negative assessment returned over recent quarters. Should the rental growth be experienced, this will provide a catalyst for the investor confidence in the Big 6 UK Cities, and the ripple effect should begin.

To read full coverage of the Insider North West – Future Workplaces’ roundtable, see the following link: https://www.insidermedia.com/roundtables/future-workplaces

Wildbrook CRE

We are looking forward to September with the ‘back to school/back to work’ ignition, and it will be a busy H2 2021 for the property industry with various sales in the pipeline.

For Wildbrook CRE, it has been an active H1 this year with various disposals and acquisitions completed and ongoing, and we look forward to building on this success with our clients.

Wildbrook Commercial Real Estate was born in March 2018. Since then, the UK has changed Prime Minister and left the European Union.

This would have been enough, with an impending Brexit finale in 2020. However, along came a global pandemic of the Coronavirus disease (COVID-19). We all know where this went and what it has led to.

As a single surveyor practice, this was deeply concerning at the outset and it was difficult to forecast ahead. What was important was to engage with clients and ascertain what their strategy was going to be, and if commercial real estate investment was going to continue during the lockdown period. Some clients were onboard whereas some were more, understandably, hesitant.

Hard work, but mainly persistence, helped Wildbrook to have a strong yet humbling 2020.

Carpe Diem with Caution.

Investment transaction volumes were down in 2020. This was not surprising – however, it is also not by a significant amount.

The total value of transactions in the North West in 2020 was £1.633bn, across 281 transactions, providing a weighted average yield of 6.46%. Compared to 2019, the transaction total was £1.9bn with a weighted average yield of 6,45%. Therefore, the 2020 performance was down by just 14% in terms of total value of transactions in the North West market.

The 2020 transactions are broken down in sectors as follows:

• Industrial – £654m / 6.28% average yield.
• Offices – £427m / 5.90% average yield.
• Retail – £248m / 7.85% average yield.
• Leisure – £42.7m / 5.99% average yield.
• Alternative – £282m / 5.81% average yield.
• Mixed Use – £22.3m / 5.40% average yield.

The best performing sector was industrial and was also ahead of the 2019 figures (£501m / 6.17%). Offices, despite the ‘death of the office‘ is ahead of 2019 figures (£418m / 7.41%).

Retail has not surprised anybody, with a significant drop from £651m / 6.88% in 2019, to £248m / 7.85% in 2020. The biggest loss was is leisure. Given the lockdown restrictions this has not at all been surprising. Leisure totalled £361m / 5.81% in 2019, compared to just £42.7m / 5.99% in 2020.

Aside from retail and leisure, the industrial and office sectors have performed well and should continue to do so during 2021. Logistics and industrial record leasing activity will continue to compress yields in prime locations, and the return of office workers to the office in 2021 will highlight the strong fundamental attributes of the office as a commercial real estate asset class.

Be Office Smart.

There were so many articles during lockdown regarding the office sector. ‘The end of the office? Coronavirus may change work forever’ was an article in the FT, wrote back in April 2020 during the midst of the pandemic.

Like many articles, all went to-and-fro not actually stating what they really think will happen. I’ll therefore get off the fence and make my suggestion.

• Offices will continue to be occupied as places to work, and will continue to be acquired by investors – bold prediction!

The UK average office lease length in 1997 was 8 years (96 months). Average lease lengths for offices in the UK have fallen to 27.4 months in June 2020, compared to 45.2 months in June 2019. This is a negative, albeit it reflects modern cultures of flexibility and convenience. Office rents have however, increased significantly since 1997 and will continue to do so whilst leases become shorter, therefore, more of a premium will be payable for a ‘short term’ lease for office space of a ‘plug and play’ specification.

What will be seen from 2021 onwards is a shift in the working day or week, but not necessarily a shift from working – or working in offices. Employers know the power of collaborative working and the benefits that this brings.

Since the roll out of the vaccine across the UK on the 8th December 2020, there has been in excess of £900m worth of office investment transactions completed.

A lot of the office investment focus has been in London, with Allianze Real Estate unit taking a majority 75% stake in a portfolio of buildings owned by British Land in London’s virus-roiled West End district, for £401m.

K&K Property Holdings (Hong Kong) also acquired Endeavour House at 189 Shaftesbury Avenue, London for £115m, at a 4.80% net initial yield.

It is the latest sign of global investors willing to bet on the long-term resilience of the world’s biggest business districts. Investors are seeking out buildings with long leases, lured by returns that dwarf those available from other safe haven assets, including government bonds.

There needs to be a recovery process for offices nationally, but recent investment in the office sector does show an underlying confidence.

It is likely that some office occupiers will look to reduce their requirement footprint in the short term, whether this is in prime locations or in ‘hub and spoke’ satellite locations. This could be a result of fewer employees at a business, more remote working reducing desk number criteria or businesses budgeting downwards due to loss of turnover and profit. This will assist older buildings with smaller floor plates.

Cities such as Manchester are still seeing larger floor plates being taken at new build assets, through the commitment from global occupiers such as Hilti, Tech Mahindra and BT.

Offices are for people, and people like people. The property sector in particular is a social career and the office has to continue in some form. 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. With the sale of Helical’s Powerhouse Portfolio and 4 New Bailey, Manchester City Centre enjoyed some good success in Q4 2020 – surely with investors taking a view that offices will be fine.

Sheds – 1,2,3.

It is no coincidence that when typing in to search for ‘manufacturing’, ‘logistics’ and ‘industrial’ images, that a large number of photos show a picture with a technology emphasis.

The industrial sector has evolved, from the real estate itself and through the occupier chain.

When I was an industrial agent during 2007 to 2015, in the early days we were instructed on behalf of Industrious (now Logicor, and previously Erinaceous) on their North West portfolio. At this time period, sheds were not in vogue. We introduced a ‘1,2,3‘ deal whereby terms were offered on a 3 year lease for £1.00 per sq ft in year 1, £2.00 per sq ft in year 2 and £3.00 per sq ft in year 3. Tenants still wanted rent free on top!

Now, in 2020, industrial rents in the North West are in double digits for SME size assets, and are at £6.95 per sq ft for prime assets in excess of 50,000 sq ft. Yields have also compressed, with some evidence as low as 3.87% in the North West – achieved in 2020.

3D printing, autonomous vehicles, cloud logistics, drones, robotics and automation – from 2007 the industrial sector has really excelled. The diverse tenant base still remains however, and following Brexit we may see more manufacturing processes near shoring. The old ‘metal bashers’ and ‘widget manufacturers’ still have a role to play and such tenant operations have seen good sale and leaseback sales where high tenant fit-out is apparent and tenants are well embedded to a particular asset and location.

Due to the rising land values (in excess of £1m per acre for some North West sites) and build costs per sq ft, there has been a shift in the past 10 years from building multi-let SME industrial assets, to building big boxes in excess of 100,000 sq ft due to the efficiencies to build big through economies of scale. There has been a lack of new supply therefore for the SME occupier market.

The occupier trend and rise of e-commerce has also led to more ‘big boxes’ being developed for logistics occupiers and the likes of Amazon becoming a familiar leasehold name with ‘last mile logistics’ depots spreading across the UK.

This has led to a number of investors acquiring retail warehousing assets, where they hold potential for conversion to logistics/industrial.

Retail park locations and formats are well suited to aid this process. By their very nature, they offer locations close to the customer, with the added benefit of good surrounding infrastructure.

Retail parks in or near to large urban areas tick most of the boxes for ‘last mile’ logistics, but they face significant competition from other uses. In recent years warehouse growth has gone hand in hand with growth in e-commerce and the diverse range of logistics responses required to support it.

Industrial and Logistics will continue to be resilient during 2021. With the current supply and demand imbalance, and the constant changing technologies within the sector, the demand from investors will continue in the medium and longer term. Value will lie in the refurbishment angles of secondary stock, albeit due to residential re-development to many sites this will be limited in prime locations.

2021 Outlook

We expect a more positive year in 2021, in particular in H2 2021.

A vaccine is being rolled out and whilst daily coronavirus cases are increasing, this will reduce over the next few days, weeks and months as more and more people receive the vaccine. Confidence is increasing and after 2020 it is fair to suggest that a lot of people are frustrated by the situation and very keen to get back fully in to the working routine.

There is not the pressure from banks on borrowers on a wider scale and therefore distress is not yet seen in the market. It is not to suggest that this will not come at some point, but right now there continues to be a general supply and demand imbalance for commercial and residential real estate. Whilst there continues to be an imbalance, investors will continue to seek long income secure assets across industrial and logistics and alternatives such as medical and healthcare. data centres, income strips etc. Value investors can seek slight value in offices where uncomfortable landlords may wish to sell assets due to the short term uncertainty surrounding the sector. Long term view investors can do well from office acquisitions, particularly where some re-positioning, re-branding and asset management initiatives can be undertaken to extract even more value.

Non-essential retail and leisure suffered badly in 2020 during the pandemic, however, leisure in particular will improve in correlation with workers returning back to the office / workplace. Out of town leisure will improve quickly, with a pent-up demand from foodies itching to get away from home cooked meals – I was probably on the cusp of a Nando’s black card pre-Covid19! Retail will continue to find the new way, and secondary and tertiary towns will move slower than primary towns and cities. Shopping centres will play a huge role in the viability for revitalisation of town centres. In Wigan for example, the Council acquired The Galleries shopping centre and have a masterplan to reduce the retail footprint and replace with residential and complementary mixed uses. This in turn will provide a larger immediate catchment for existing retailers elsewhere in the town centre, for them to benefit from in the longer term. Other local authorities should be following this example, particularly where there is an oversupply of retailing provision in town centres.

There may be a shift change in new leases for retailers, with a mutual agreement to be met between operator tenant and landlords in order to create more realistic rents going forward, and going beyond just a rebased rent. Some retailers are battered from the constant headwinds forced by lockdown but mainly from the continual rise in e-commerce, and this need to be addressed and set as a priority by associated steering groups and the government, particularly if Boris Johnson wants to win again in 2024. We need to keep a Nation of Shopkeepers spirit, to keep the high street alive.

We expect to have a good 2021 and look forward to meeting with clients and fellow professionals very soon.

Stay safe and stay positive.

Do you remember the loo roll shortage, with regular scenes on the news of people scrambling around supermarkets and impulse bulk buying pasta, loo roll and bread? It doesn’t seem to be happening now.

Do you remember the scrutinised ‘up to one hour of exercise per day’ that we were restricted to? That has now gone away.

Do you remember the full lockdown, with key workers having to carry around documentation to show to authorities if questioned, that they were a key worker going to work and that was the reason for them being out of the house? The lockdown is localised now and is generally reducing across parts of the UK.

At the time, the above scenarios seemed like they would continue and it was difficult to see a way forward. It still is unclear and a global pandemic will undoubtedly bring with it some challenges, with more to come. It is obvious though that there is a way forward, and through experience the politicians and businesses can learn from this and become more resilient.

A number of my peers in the industry remain on furlough and this is difficult. We look forward to meeting again very soon as the property industry is a people industry, and we all need each other. A safe social event is certainly on the cards as soon as we are able to pencil something in to the diary! There will be possible hardship come the 31st October and beyond, when the government furlough scheme comes to a probable end, but there will also be opportunity.

Some people have discussed, ‘where will people go if there are no jobs to go to’, which is a valid question although at this stage a little overzealous in my opinion. You could argue however, that with the remote working that people have been forced in to, this allows people in the North to access job roles that would generally be based in the South, East and West, so new roles could be created.

Q. Why are fund managers generally based in London, and also Edinburgh? A. London has been the financial hub and a major trade centre since the Middle Ages. So, if people are now working remotely for say, 3 days out of 5 (an example), then why could a fund manager not be based in the North West but working for say, Aviva, L&G, Aberdeen Standard Investments? This way they could be more proactive in terms of managing assets within that particular region? This is just an example of what could be borne out of the global pandemic, but may not come to fruition of course. It could create opportunity.

There will be things that have been adapted and will change now, that will no doubt become the new normal, although not everything taking place now will be ‘the new normal’. This quote is overplayed in my opinion, similar to the unprecedented use of the word ‘unprecedented’. A lot of people on New Year’s Eve want to create the ‘new normal’, but it generally fizzles out by February. There will be things that people do differently going forward and it will create a new normal in certain circumstances, but this should be a positive as anything that does become ‘the new normal’ will generally be making systems more efficient (people hopefully not sitting in a car for over 2 hours to drive in and out for work, colleagues taking a 2 hour train journey to meet with colleagues for an update), or places more attractive to be in (encouragement of more public open spaces, better design input for high rise apartment schemes in densely populated areas to create amenity space). Not everything will be the new normal though, so quiet coffee shops shouldn’t remain as quiet coffee shops. Empty office buildings will not stay as empty office buildings. Empty train carriages should soon start to fill up.

Some people have discussed, ‘is the office dead’, which gives rise to a healthy debate and there is no outright answer – as it is subjective and also will differ from business to business and sector to sector. I personally believe that the office is alive and well. Is this because I want to protect real estate and my clients? No. It’s because I think the pessimism around the sector and the pandemic is temporary. Yes, there’ll be a cultural shift in some workplaces, but demand for offices will remain.

Additional space will be required (if not provided already) for wellness areas, break out space, online conference facilities etc.

What people haven’t been factoring in is costs to set up an employee at home and also the employer liability and future litigation.

There’s the argument for trainees and graduates. How do you learn from colleagues when not in the office? I have heard the stories about graduates living in city centre flats battling with fellow flat mates across a breakfast bar ‘desk’ to try and secure the best of the shared WiFi. The remote working for trainees and graduates has today resulted in CBRE, Colliers and JLL deferring their graduate programmes due to Covid-19 until “early 2021”, whilst Savills will move to a virtual scheme later this month. This was announced in the Property Week and it is detrimental for firms in terms of fresh new intakes providing energy and enthusiasm. It is however, only temporary, and is a wise decision by each firm as it is unfair to allow a new starter to be welcomed in to the property world virtually – even in 2020. It is also ironically timed though, with the Kickstart Scheme government initiative of getting young people back in to work.

I think the office debate is to be settled by the employer and not the real estate asset. The employer must decide on what the working patterns will be or will remain, and how they wish to invest in employees to work from home (non-desktop equipment, fully secured internet, mobile telephone, ergonomic seating, health and safety policies, remote server, zoom etc business accounts). It is down to the more rigid, traditional industries or practices to become more ‘2020’ and embrace flexibility of the workplace. Some of this has already been happening widespread across creative and technology businesses, with innovation at the forefront, for a number of years now.

On a webinar yesterday, William Dowson, agent at the Bank of England suggested that the UK has moved forward in digital take up by 10 years in just 6 months. This is a positive, surely.

William Dowson did go on to say that the dash for cash in March has since been relaxed following government quantitative measures, and that the economy should balance out by 2022, with the commercial real estate market being robustly stress tested which provides them with confidence. The Bank of England is “not out of firepower” if it is needed to offer further support to the coronavirus-battered economy. We will see what transpires in the months ahead and post rental payment quarter dates.

The commercial real estate investment market has unsurprisingly suffered since Q1 2020. The first quarter of 2020 was a positive start of the year however, the Boris Bounce was short lived and we are now on the Rishi Rise hopefully (quantitatively) easing out in to Q4 2020.

In brief for Q3 2020 (to date), over £3bn of commercial real estate has transacted so far in Q3 2020, across 207 transactions, reflecting a weighted average yield of 4.96%. The figures are down by roughly 68% from 2019. Interestingly, in the top 10 investment transaction lot sizes, there are 5 office assets (top 3 value were offices) and 2 retail assets. The highest transaction value to date in Q3 is a £380m office acquisition of 25 Cabot Square in London, acquired by Link REIT (Hong Kong) at a 4.70% in July 2020. This asset is leased to multiple tenants including Morgan Stanley, providing a 10.9 year WAULT. This is not viewed as a residential conversion opportunity in the short to medium term (given the unexpired term), so there is an obvious belief in the office sector. Other offices to transact so far in Q3 include 1 New Oxford Street, London (£174m / 4.20% NIY), 1-3 Lochside Crescent, Edinburgh (£133.25m) and Bourne Business Park, Addlestone (£76.7m). The retail assets featured in the top 10 highest value transactions to date include Broadwalk Shopping Centre in Edgware (£75m) and a portfolio of six Waitrose supermarkets (£74.1m / 4.40% NIY).

Surely this is a positive for the office sector, that high value assets are trading in Q3 2020?

Do you remember when Twitter and Fujitsu said to staff that they can continue working from home permanently? While other organisations plan to work from home in the short to medium term, Amazon is expanding its offices across the US, announcing that it will expand it 6 of its US Tech Hubs. The E-commerce giant plans to create 3,500 new tech and corporate jobs across the US and it will invest $1.4bn in its new offices, which will host teams supporting businesses across the company. Will others follow suit in this brave move by Amazon?

There is an argument that for some businesses an office is unnecessary, and that will be the case. Some offices will reduce in capacity, for sure. Offices can add value to a business, particularly the value of a business to be acquired for example. Offices are adaptable assets and they offer conversion and re-configuration potential, so landlords can look to create flexible working if required and can open up floor plates for open plan working if required. Lower floors can be changed for alternative uses (leisure, retail, residential) and so too can the top floors of assets where they have an attractive view or outlook. The fundamentals of an office building can create numerous opportunities.

Retail is continuing to transition and it is unknown where the high street will be in 5 years time, from a retail and consumer perspective. In many villages and towns some of the general A1 retail units are becoming F&B orientated uses or service led businesses. Experience is a key going forward for retail, in terms of what the consumer gets from visiting the store/shopping centre. I believe that local retail is still in demand, and now in vogue following the pandemic. High street retail specialists can comment further, however, I do believe that similar to the office, that the high street is not dead. It just requires time to adapt, improvise and overcome the challenges. Retail and the high street is most often found in central, higher value locations – which creates an opportunity.

Retail warehousing has had a better lockdown than other parts of the UK retail hierarchy. More stores have remained open due to selling essential goods. Retailer’s margins have been supported by the business rates holiday and generally forgiving attitudes by some landlords towards rent holidays and re-gearing leases. The social distancing friendly nature of retail warehouse parks and schemes should support a quicker recovery to normal trading levels than in some other parts of retail. Occupiers such as B&Q, B&M Retail and the supermarkets have traded comparatively well over the last two quarters, and the resilient nature of the ‘essential’ business provide attractive characteristics as an investment opportunity. Retail warehousing generally has good fundamentals to convert to industrial last mile logistics or a trade counter sub-division scheme. This creates an exciting opportunity, at a yield discount to pure industrial assets.

Industrial is industrial and continues to grab the headlines in the occupier and investment markets. The industrial sector is performing well and the rise of e-commerce has been exacerbated during the global pandemic. E-commerce is not going to go away, and following Brexit the possibility of more manufacturing processes, nearshoring, will have a positive effect on the demand for industrial accommodation in parts of the UK.

A British Property Federation report revealed in 2019 that there is presently 69 sq ft of warehouse floor space for every home in England. If this relationship were to continue this would mean 21 million sq ft of additional warehouse floor space is required each year, to match the Government’s annual target of 300,000 new homes. This will provide opportunity now and over the years ahead for the already buoyant industrial sector.

The ‘Planning for the Future’ government report aims to speed up planning approval for developments, which the prime minister has described as “unlike anything we have seen since the second world war”. This will no doubt shape the future of the high streets in England and will also act as a stimulus for further new development. This will no doubt create opportunities.

I think that H2 2020 will continue to be a testing time for business, although in terms of commercial real estate investment there should be an uptick in activity given that the furlough scheme comes to an end and more people return to work. Stalled investment sales should drip through to the market in Q4 2020 and any paused transactions could regain momentum through to completions. The year has been difficult to date, but it is imperative to keep looking forward but be mindful of the current situation.

Wildbrook Commercial Real Estate was incorporated in March 2018, so following Brexit and a global pandemic, I am hopeful that 2021 will be a less confusing year. We have assets under offer and are building on an existing pipeline of opportunities, working closely with our clients.

2021 can be a positive year and can be economically boosted by the Euro 2021 football championships and Rugby League World Cup 2021, both being held in England in part or as a whole. Holidays may be less risky and more bookable, and MIPIM could be back on the agenda (an empty Caffe Roma is not ‘the new normal’). The rise of the ‘staycation’ should boost the UK economy and I will try to do my bit later this month down on the South Coast.

Do you remember my previous blogs where I updated readers during lockdown, with the cost of a pineapple at the local farm shop (£5.00!) and broccoli at the local SPAR (£1.30 per head)? Well, last night I walked by a neighbours house where they were offering cooking apples for free, due to a “windfall in their garden”. Free apples – this is a positive, and this provides an opportunity.

Wildbrook continue to physically occupy our office in Manchester, so if you want to meet for a cup of tea just drop us a line. Alternatively, an online meeting can of course be arranged.

Stay safe,

Neil Higson – Investment Director.

Q4 2019

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.

Q1 2020

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.

Neil Higson, investment director and founder at Wildbrook Commercial Real Estate, says total global capital flowing into UK real estate has dropped in 2019 as Brexit uncertainty, deadline extensions and fears of a no-deal departure weigh heavily on the commercial real estate market.

Commercial real estate investment transactions for the North West in Q3 2019 was down by 43% compared to the Q3 2018 figures. The industrial investment market however had improved in Q3 2019 compared to Q3 2018, by an attractive 26.18% – after all, sheds are the new shops, leisure units, data centres etc…

The gap between 10-year UK government bond yields (currently 0.65%) and those in the North West commercial property market (average 6.29% in Q3 2019) is a significant margin.

This scenario can therefore be seen as a buying opportunity for investors, as returns in commercial real estate are greater than the alternative markets. Apart from general retail, occupational markets remain resilient in established locations.

There is a feeling of optimism that should the election process and the outcome result in a Brexit deal, the UK real estate market could witness an uptick in investor sentiment and activity.

According to Capital Economics, the most likely scenario of ‘further delay’ is given a 45% chance, followed by a 35% chance, ‘Brexit deal’.

Should a repeated delay situation continue, the bank rates may be cut and property yields will soften although not by as much as previously forecast, due to the gap between the commercial real estate yield and bond yields.

The continuing, accelerated rise of retail yields may in turn lead to a slight rise in other general commercial sectors such as industrial and offices, due to the wide margin differential between the sectors.

Alternative real estate sectors such as hotels, healthcare and student housing may still remain at a lower yield level due to longer, rental index linked leases associated within this sector.

Interest rates remain at a low which still provides an attractive rate to those investors looking to gear and leverage their investment returns.

Although there is a shortage of on-market investment assets available due to general uncertainty, when assets are coming to the market there appear to be less buyers coming forward. Less competition in the bidding process can provide some ‘value’ for an investor.

We still feel that each investment opportunity should be treated on a case by case basis. It is all about what the client investor wants, and why.

Wildbrook Commercial Real Estate have recently acquired two industrial sale and leaseback assets (fundamentally sound), with good secure income for 10 years plus, for separate investor clients. The yield returns provided to our clients ranged between 7.00% and 8.53%. These were delivered off-market and generate returns well in excess of alternative investment yields and above on-market quoting levels.

If a Brexit deal is secured in 2020, this will allow bond rates to rise and create a possible upward pressure on property yields. If a Brexit deal is not secured and continues to delay, there could be a quicker rise in property yields due to a prolonged uncertainty ahead.

In any case, it is now an exciting time to be involved in the commercial real estate investment market – as an agent and for an investor. A ‘market correction’ or a ‘cooling’ is probably upon us, albeit the yield shift is unlikely to be too dramatic due to a good underlying occupational market, a lack of asset supply (excluding retail) and low interest rates available.

We are always happy to meet with new and existing clients to discuss investment requirements and to discuss an existing portfolio and how we can assist further.

We wish all of our clients a good end to 2019 and a happy and prosperous 2020.

Well, 2018 was a huge success for Wildbrook CRE in the inaugural year of business. There were some setbacks with a couple of possible deals lost (through client decision and ‘not Brexit related’), but on the whole it was a very good year.

This was highlighted in the company being nominated for a number of awards.

We were shortlisted for Newcomer of the Year at the Insider North West Property Awards and the Property Week Awards. Neil was also shortlisted for Young Personality of the Year at the Property Week Awards. None of these were won, so it was almost a case of ‘always the bridesmaid and never the bride’, until Neil surprisingly won Young Property Professional of the Year 2019 at the Insider Young Professionals Awards!

Since the start of 2019 it has been an interesting commercial real estate investment market.

Investors certainly have the equity to acquire assets, but the lack of assets available on the open market has led to a subdued investment transaction level. We have clients with good appetite and are optimistic regarding H2 2019.

The Q1 2019 transaction volumes in the North West are down in comparison to Q1 2018. There is no shying away from that. This in part is due to a lack of available on market opportunities, but also 2018 was possibly distorted by HMRC lettings creating new investment sales and also a number of forward funding deals which have now dried up a little more due to a development lag resulting in a delay in new schemes coming forward.

Q1 2019 had recorded 53 transactions totalling in excess of £290m, creating a weighted average yield of 6.08%. This included Aviva’s £45m forward funding of a 432,000 sq ft site (158-bed hotel and multi-storey car park) at Circle Square, Warrington Council acquisition of Tesco Superstore at Farnworth for around £30m and Trafford Council acquisition of Sainsbury’s in Altrincham for around £24m.

Q1 2018 had recorded 83 transactions totalling approximately £1bn, creating a weighted average yield of 5.81%. Just three of these transactions surpassed the Q1 2019 total value, being Lime Property Fund’s forward funding of 2 New Bailey, Salford (£113m), L&G acquisition of the India Buildings, Liverpool HMRC letting (£125m) and Secure Income REIT’s step in to the North West with the £102m acquisition of Manchester Arena. Others included M&G Rochdale Riverside scheme at £80m and the Invesco forward fund of a PRS scheme at Strand Street in Liverpool at £86m.

Investor appetite remains strong in the North West. This has been evidenced particularly in the Manchester office market and also in the industrial sector (multi-let and single let) throughout the region. Industrial assets at Heywood and Crewe each sold for 5.5%, an office in Bury sold for 5.5%, amongst many other sub 6.00%.

Some retail assets have proven to be well received too, in particular by local authorities, with the Waitrose and Sainsbury’s supermarkets in Altrincham trading earlier this year, both at sub 6.00% yield.

It has been a good start to 2019 for Wildbrook CRE. We have acquired two office buildings, a sale and leaseback industrial warehouse, two well let industrial assets and a multi-let retail complex. With further transactions in the pipeline towards the end of Q2 2019 keeping the lawyers busy, we expect to see more deals completing over the coming weeks.

What do we think about the remainder of the year? Lots of the same. A somewhat flat market in terms of market sales and on market activity, but still a very encouraging underlying investor demand (led in turn by continued occupier demand for industrial and offices) that will continue to stimulate the off-market activity.

I think that due to the above, those vendors that are considering selling an investment asset on the market then this would be a very opportune time. Less distraction on the market therefore any market sales would be very well received by agents and investors would tend to give it full attention.

Those sitting on their hands (buyers and sellers), I wonder what will happen post October 31st Brexit deadline. Will the market fall off a cliff? – highly unlikely. Will anything happen by 31st October? – unlikely, given current political situation. So, if a decision could be made now to buy or sell an asset, then October should not be a decisive factor. We always say that if a deal is good on paper, and the real estate fundamentals are good i.e. good location for sector and quality real estate to re-let if required, then why sit on your hands?

Here at Wildbrook CRE we are happy to advise on any possible opportunities and we continue to work with our proactive investor clients in what will be another bright year for us. Our new office on King Street, Manchester, will be ready in the coming weeks so it will be good to see existing and new clients, fellow agents and property professionals at Wildbrook HQ in June 2019!