My work takes me travelling all over England and Wales so, apart from work for regular clients, I never know in advance where each new instruction might be. Long-distance travelling is not as demanding when as I do in having a driver with a luxury saloon car, in my view a sensible approach to efficiency that also avoids the hassle of finding somewhere to park. Listening to a Central London surveyor tell me recently that he’d declined an instruction in Brixton, South London because the 10 miles or so round trip would involve a 4-hour journey on London’s transport system including walking time, I said I would’ve taken on the work because it would only take me about the same time to travel a couple of hundred miles from where I’m based, including the inspection and probably cost the client less because my fees are more competitive. My arrangements are solely for my convenience: I do not charge extra for travelling costs.
I have, with client approval, dealt with properties without a visit, but I prefer to inspect because there is no substitute for seeing a property for oneself, the nuances are not often identifiable from photographs and trading plans. Trading plans could be out-of-date, the surroundings hard to imagine. Photographs are only helpful from the angle the photograph was taken. Since most photographs depict a positive slant, looking at a property from a less emotionally attached viewpoint can result in fascinating conclusions. “Is that settlement in the wall I see before me?”
Larger firms might have surveyors for each region or county, but I’m not territorial; I travel to wherever the client’s property is located. Acting for different landlords and different tenants all over the country provides a rare insight into different attitudes. The snag with a regular patch is tunnel-vision, or as I once told an arbitrator in a review of a shop in Kent, and much to the annoyance of the tenant’s surveyor a local that dealt with most of the reviews in the town, bias as a result of over-familiarity. Why a landlord with a shop in Cockermouth, Cumbria, where I was yesterday, would want to instruct me rather than a more local surveyor is a source of fascination to my friends whose knowledge of the property market is limited to residential. But for those involved with commercial property, the whereabouts of the surveyor is normally less important to a landlord or a tenant than the relationship with that surveyor.
Long ago, I had an ambition to do a job in every town in England and Wales but, although the number of places I’ve achieved is impressive, I’ve given up on that idea because there are a lot of places nowadays where frankly it’s not worth bothering. There are two reasons for that: firstly, in many places rents have to remain economical for the tenants otherwise the shops would close down and the premises become unwanted; secondly, it’s not worth it for either landlord or tenant to expend on surveyor’s fees because there’s not enough in it for either party to justify the extra costs.
Different attitudes lead to different approaches to negotiation and investment objectives. Some landlords want the highest rent regardless, others content with a slight uplift or nominal increase. Highest rent regardless is one reason contributing to the decline of the ‘High Street’ – the knock-on effect of comparable evidence at each review can destabilise profitability and drive the more magnetic retailers elsewhere. Nominal increases may not result in sparking performance but tend to avoid voids.
Since the early 1980s when I first identified and wrote about the changing face of ‘high streets’, the gap between town centres that have what it takes to attract enough profitable shoppers to maintain growth and those that do not has widened beyond the point at which I reckon it is now impossible to bridge. (The difference between shoppers and profitable shoppers is having money to spend.) I have already said that most provincial towns and cities have gone ex-growth, apart from their core positions, and every investor that contacts me to discuss an instruction tends to agree with me. Of course, if you own shop properties in places that have gone ex-growrth and are wondering whether to get your money out or ride the storm in the hope that one day things will return to normal then it’s not much comfort to be told there is little or no likelihood of any increase in rent, so the chances of my being instructed when I express such a negative opinion are zilch. Much better to instruct someone whose style is enthusiastic about the prospects for an increase in rent regardless of reality!
The more places I inspect the more familiar they become. With unfamiliar places, my interest in local history generally holds me in good stead. For me, a knowledge of local history provides a sense of place and when combined with finding out what was there before the supermarket, for example, helps to pinpoint the relationship between one trading position and another.
Trading positions are not necessarily all they seem. In all town centres, there are natural desire lines. A natural desire line is the long-established habitual preference of generations of local people out shopping to cross over a road regardless of the Council’s preferred and safer crossing points. In one town I’m particularly knowledgeable of, the natural desire line is across the widest and arguably by modern standards the most dangerous section of High Street which despite pedestrian-controlled traffic lights just yards away is not enough to tempt locals to cross more safely. In a matter I’m dealing with in a London suburb the natural desire line runs from the high street through a supermarket and its car park and across a nearby main road. Rather than try to steer people away, the local council in its wisdom has installed crossing points at busy junctions.
A challenge for investors is appraising the health of a high street. When numerous shops in the street are vacant or unoccupied – unoccupied doesn’t necessarily mean unlet – it’s obvious that there’s not enough demand to fill them. It is in areas where rents are economical and supporting full occupancy that the impression can be formed of a healthy high street, and consequently a good investment. Where the proposition is bought in a reality that has been misjudged and at rent review the landlord wants to go one step further and increase the rent above the economical level, the tenant’s resistance will be fierce which, judging by the superficiality of full occupancy, comes over as a try-on.
Whenever there’s a downturn or recession there is usually a fall-out with many shops becoming vacant. As demands picks up again, the level of rent, in terms of Zone A, is not necessarily any higher than before. For the Zone A tone to exceed the historic level and confirm rental growth, the demand for shops has to be unquestionable. There are not many trading positions where that is the case. Most trading positions are, for one reason or another, struggling to survive.
One way to assess growth potential is to study the expansion requirements of multiple retailers. Allowing for the fact that some multiple retailers list some towns merely to deter their competitors, rather than any serious intention to open a branch there, there are numerous towns that appear on most lists. And where, as one would expect, the availability of shop investments on the market is in short supply.
Another way is to identify the communities of immigrant tenants that tend to congregate off pitch where rents are lower to begin with but as more of the same kind open up so the rents soar. Identifying the creation of new communities can provide rich pickings for the shrewd investor.