The Covid pandemic brought with it bleak times for the commercial property market: the high street was already in decline but this was accelerated significantly by the lock-downs and online sales. Uncertainty over the future of office working added to the gloom, with only logistics warehousing and distributions centres seeing any gains.
Rent payment difficulties and government protection measures for tenants compounded the troubles for landlords as capital values and achievable rent levels were on the slide, but there are now some tentative signs of a turn-around.
Pessimism turns to optimism
One indicator of the turnaround is the returning strength of property funds, with some commercial property investment trusts seeing their strongest performance in two years. James Klempster of Liontrust Asset Management has said that this Covid period has seen a typical case of an over-reaction, which is now being corrected:
“What you can say with confidence is that markets always over-compensate on the way up and the way down. Markets have spent two years over-emphasising the risks that people would never return to the office and anticipating a sea-change in behaviour. The reality is somewhere in the middle.
“Undoubtedly you can be productive without being in the office, but we didn’t roll back years of evolution. People still want to co-operate. We are now seeing a reversal of that excessive pessimism.”
In retail also, retail parks, one sector that has held up comparatively well compared the high streets and shopping centres, are changing hand at decent yields.
One example is Peel L&P Limited’s sale this week of The Trafford Retail Park for £33 million, bought by UK Commercial Property REIT Ltd. Built in 1999, the 12-acre retail park comprises fourteen retail warehouse units.
Trafford Retail Park is located in the heart of Traffordcity, said to be a vibrant city within a city, a unique destination where it has been said you can be whatever you want and combine shopping with leisure activities – the site benefits from high footfall, attracting around 2.5 visitors per year.
UK Commercial Property REIT Ltd is advised and managed by Aberdeen Standard Investments and says the for its £33 million price tag it has acquired 143,000 square feet of retail warehouse space.
The fund’s manager Kerri Hunter has said:
“This deal presents us with an opportunity to strengthen our portfolio and enhance income through the acquisition of a well-located retail park with a high quality tenant base and impressive footfall in one of the UK’s premier shopping and leisure destinations.
“While some parts of the retail sector have struggled in recent years, Trafford Retail Park is primarily let to discount focused and convenience led retailers, which have proven resilient and continue to perform well.”
The retail park is currently 100% occupied, let to attractive tenants, leading household name brands, including B&M Bargains, Dunelm, TK Maxx and Home Bargains.
According to the buyers their acquisition brings in an income of £2.5 million annually, with rents averaging £17.17 per square food.
Shares in UK Commercial Property REIT currently trade at 76p, down from 84p last August.
[Image shows London Underground before the pandemic]