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To provide any advice on commercial property you need large amounts of market data, and this is one area where the UK has lagged behind its European and G7 competitors, sitting at a lowly 11th on Jones Lang La Salle’s Transparency Index 2010 for “market fundamentals”.
It contributed to the last recession, and has contributed to the 2007 recession, playing a large part in the creation of toxic bank debt
Solutions were proposed in 1998 but no progress has been made because of the size of the job and the conflicts of interest.
Those conflicts of interest are generally owners of property wanting to hide, disguise or mislead as to the true value of their commercial property.
Headline Rents are a prime example of this and it is no coincidence that those areas where the practice of quoting headline rents is rife e.g. City of London, is one of the areas that have achieved the worst real rental growth over the past 20 years and where the Banks have lost large sums.
In 2005 we set about solving this problem.
Following 5 years research, using 600,000 pieces of rental data going back 20 years and across 5030 separately defined markets, covering 1.1 million offices, shops, and industrial premises, we can now "lift the veil".
Anyone can now access independent, objective market information about their commercial property.
Our systems now can automatically identify which property is in which market using postcode, street and a couple of other criteria, and then deliver that data to businesses and their advisers in the following ways
CostMINDER gives a business a current estimate of its rental value and a guide as to whether the rent will rise or fall over time.
Online Valuations not only give an Index showing the rental performance of the market over the past 20 years at 5 year intervals but also a current estimate of the capital or rental value all in a downloadable pdf report.
Relocation showing businesses the alternative cost of commercial properties in 40,000 locations.
To demonstrate the depth of data we have produced two reports below;
Overview of the UK Market for Offices, Industrials and Shops 1988-2008
1) National Performance of our Category Types
This represents the rental performance for properties built prior to 1995 and unrefurbished and unimproved since then.
Comment
It comes as no surprise that Major Shopping Centres have had the largest growth, but it is notable that these outperformed the next best by 70%. Nor, that large industrial units are some of the worst performers.
The fact that Offices make up the most of the "worst performers" and have been outperformed by industrials may come as a surprise. But it does reflect the poor performance of actual rents of pre 1995 buildings in the City of London over the last 20 years.
Only rents for major shopping centres and city centre shops have kept pace with inflation
2) Regional market performance
This is the total performance of offices, shops and industrial premises in an area built prior to 1995 and unrefurbished and unimproved since then.
Comment
Credigion is an area of Wales around Aberystwith, here and most of the "top ten" are areas where considerable investment has taken place in the last 20 years, often in areas that were previously run down and of low value. Starting from a low rental base, then, rental inflation is more likely.
The best London performer has been Kensington and Chelsea, and this will be almost entirely to the big growth in secondary retail zone A rates, that have gone hand in hand from the improvement in many residential areas.
The worst performers are mostly those in the South, and this reflects, in many cases that they had high rental values following the 1988 boom and following the recession they never really recovered. It also reflects the impact of new shopping centres on established High Streets
Perhaps the most surprising of all is that the worst performer is the City of London as, in effect, rental values of unimproved buildings constructed prior to 1995 have been stagnant over the past 20 years.
From an investors point of view that sort of performance is abysmal and contradicts the general view within the Surveying professional that an investment in a commercial property in the City of London is generally a good one.
The problem with that general view is that
1) It is based on "landlord" supported data.
2) It is distorted by reference to performance of "headline rents" NOT rents paid
The other issue is that to keep its place as the financial centre of the world, buildings are constantly being demolished and rebuilt or refurbished to deal with changes in technology. In the 1980's , 1960's buildings were being demolished , and the 1990's, 1970's buildings being demolished.
Ultimately, what it means is that many City Offices are "obsolete" after 25 years and at the point their rental value will probably stagnate and require a cash injection to keep rents rising.
This makes City of London a "speculation" more than an investment.
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