With the market back in seemingly full swing, it is sobering to remember that, unlike the old advert for a certain Dutch lager, this one is yet to refresh the parts other recoveries managed to reach.
According to a Northumbria University study into 24 major towns and cities outside central London, there are 26.7m sq ft of vacant offices out there, with the vast majority at risk of becoming obsolete (p23). Unchecked this could have a devastating effect on urban centres around the UK and on landlords too, which are losing nearly £3bn in rent from long-term vacancies.
Nine-tenths of the affected stock is secondary or tertiary. Much of it would require serious work to make it attractive to post-recession occupiers whose demands have changed since before the crash. And would that investment be justified by a return?
What interests researchers Kevin Muldoon-Smith and Paul Greenhalgh is what can be done with the stock. Almost half is centrally located and, with intervention from landlords and perhaps with public sector support, could be adapted for alternative use. Much would be ripe for office-to-resi conversion.
The space is equivalent to more than 30,000 average-sized UK homes. Not all would be suitable, of course. But with a housing crisis in parts of the country and unlettable office stock often in the same areas, it’s time there were better co-ordinated approaches to delivering solutions to these parallel problems.
¦ Property can expect to see total returns of 15% this year, according to Cluttons. Income returns of 6.6% are mooted. And while London offices lead the charge, the firm sees strong prospects in regional cities.
There is already strong evidence of delivery. Investment volumes in the North West rocketed by 295% in Q2, buoyed by M&G Real Estate’s £320m purchase of , LaSalle Investment Management’s purchase of Warrington’s for £141m Manchester and Schroder Property Investment Management’s acquisition of Manchester’s from Bruntwood for £132m. And away from these headline-grabbing deals, there was a fivefold increase in office transactions, according to Lambert Smith Hampton. A total of £1bn was transacted in the region in Q2 2014, with £2bn sold over the past 12 months. These are levels not seen since 2007.
With retail and leisure performing strongly – and UK institutions the leading net investors in the region – there is every sign of balanced, sustainable and nationwide investment. In the better stock, of course.
¦ From the very moment the Serious Fraud Office launched dawn raids on Vincent and Robert Tchenguiz in the middle of MIPIM 2011, its case against the brothers grew weaker and weaker. The cases themselves collapsed two years ago. This week both brothers accepted compensation, legal fees and an apology that will cost the SFO and the taxpayer at least £7.5m. Both brothers now intend to pursue their case for damages against third parties. This week’s decisions are a tremendous vindication for the Tchenguizes. They will ensure all lawyers involved stay busy and well remunerated. But more than anything they highlight the need for any public investigator to handle an investigation with due caution, with responsibility and avoiding any headline-grabbing diary clashes.
¦ Congratulations to property’s athletes competing in the Commonwealth Games. CBRE’s Karen McElveen was part of the Scottish netball team that missed out on a medal. James Kyriakides, an assistant estate surveyor at Associated British Ports, represented Wales in the hockey. Cyclist Jo Watts, founder of Watts & Co on Guernsey, was taking part in the time trial as EG went to press. If they and others are looking for inspiration they should perhaps turn to Duncan Mathieson who was part of Scotland’s silver medal 4x400m team in 1990. As MD of Realis Estates, he now sponsors Steve Lewis, the favourite for pole vault gold: taking part, then giving back.
Damian.Wild@estatesgazette.com
