COMMENT The property market can be considered a very delicate ecosystem – like nature, it generally works better if you don’t meddle with it. The problem is change. Like evolution, the property market is notoriously and glacially slow to adapt.
What’s worse is quick change or boom-and-bust events. The actual and real effects of one-offs, such as Brexit or Covid, are difficult to predict. None has proved quicker and more unforeseen than Covid, which caused the closure of town centres overnight.
Such a large and unexpected imbalance creates huge property market uncertainty and a disproportionate counter-reaction that can take years to settle back down to some degree of stability.
In addition, Covid has dramatically accelerated the year-on-year rise of internet-based retailing. This change is likely to remain years ahead of where it would have otherwise been in much the same way as hybrid working is now a common term that didn’t even exist two years ago.
The common perception is that the plight of all property falls squarely on the property owner alone to cure. This is not the case, especially for town centres.
A town centre is not just another asset like an industrial shed or office block: it’s the foundation and focal point of a community. Landowners should be looking to identify and engage with key stakeholders from that community and form co-operative relationships if long-term sustainable solutions are to be found.
Danger in the extremes
Whether in good times or in bad, property owners are typically perceived to be “villains” who always have deep pockets and bulging bank accounts.
In good times, when retailing typically does well, retail rents and values rise, which simply reflects the market sentiment. In a similar way, nobody minds if you are privately selling or renting your house and you transact with the person who bids most. So why should anyone object to a commercial property owner doing exactly the same?
Conversely in bad times, demanding or holding out for more rent is simply not an option and it never has been. The property owner has to react to the market or change direction.
It’s always the extremes that pose dangers and skew the market – when things are either really good or really bad – and the same applies for the occupier market, but no tenant has ever volunteered to pay more rent having had a particularly good year.
By contrast, in tough times most landlords take into account genuine hardship cases by either securing a replacement tenant, accepting an early surrender or otherwise providing some form of financial assistance to avoid increasingly costly void periods. Turnover rents are a way of sharing the burden, but the lines are more blurred as internet sales continue to grow. It is time to tackle the whole problem head-on.
For many years the relationship between landlords and tenants has been engrained as a contest, not a partnership. When the cycle swings to one extreme or another, “retaliation” is the first thought that comes to mind when it inevitably swings back the other way. This is a very difficult emotion to break and a big problem for everyone.
Nothing is more topical today than the plight of many town centres and property owners alone cannot wave a magic wand to cure this.
Government or local authority support is effectively the only intervention that can invest into an unviable environment. This can be done through direct ownership, enterprise zones, public realm works, grants, public transport and parking and, in the extreme, CPO powers among other mechanisms.
This needs to be managed carefully as all local authorities are different. But what remains the same is that the timeline to cure failing town centres will be very considerable.
History has shown that well-meaning local authorities are not necessarily good investors or asset managers. Some cannot look beyond their next election which restricts the timeframe available for any meaningful progress. Those in a stable political environment are usually better placed for successful partnerships.
History has also shown that private investors are not always good at satisfying what a given location and its key stakeholders need. If a commercial investor does not make a sufficient capital return, or indeed creates a negative one, you cannot repay debt with sociological success alone. Commercial investors need to be willing to look to the longer term for their returns in challenging locations. Support of the banks will be equally important.
Co-operation and patience
The future success, or otherwise, of our struggling town centres will need the combined, consistent and sustained co-operation of every stakeholder, not just the property owner.
Unless the widespread public perception that all the burden for town centre recovery sits entirely on the shoulders of the “greedy landlords” is corrected, as well as the finger-pointing over who should take that responsibility, nothing material is going to happen.
After that, patience will be required – because all of this will take some time to resolve.
Alister Thompson is head of asset management at Capreon
