It’s not that there is so much uncertainty these days, it’s that there doesn’t seem to be any certainty any more.
That was the view of one wise old head this week.
So how do you cope in these volatile times? Well, there’s some sound advice buried in this week’s slew of corporate announcements:
1. Listen to the best. The section in Derwent London’s half-year results devoted to risk management and internal control is illuminating. It identifies 10 strategic risks, from cyber attack to yields moving out. Of these, “adverse Brexit settlement” is the most eye-catching. If you’re not already, you may want to emulate the mitigating steps being taken by EG’s reigning Property Company of the Year:
- Putting in place strong financing and covenant headroom
- Creating a diverse and high-quality tenant base
- Weaving in flexibility to its development pipeline
- Using financially strong and reputable contractors with good access to labour
- Focusing on “good value, middle-market properties” which are less susceptible to reductions in tenant demand.
2. Stay close to government. In the weeks that followed the Brexit vote last summer, details emerged of plans to consolidate much of the civil service into 16 hubs totalling 7.4m sq ft. Some were sceptical. Would it go the way of other Whitehall reform plans and fail to live up to its promise?
Far from it. Wales’s largest ever office leasing deal was secured this week, with the Government Property Unit confirming a 25-year lease for 265,976 sq ft at Rightacres and Legal & General’s Central Square. It is the fifth deal of its kind, signalling Whitehall’s commitment and resolve.
The public sector can be a brake, but this deal shows it can be enabler too. And with 28% of the Welsh population working for the public sector – almost double the UK average – government action can make or break a market.
3. Focus. LondonMetric sprang from the merger of London & Stamford (London resi, M25 office and distribution warehouses) and Metric Property (out-of-town retail). It soon sold out of London to focus on retailer-led distribution and out-of-town and convenience retail. This week LondonMetric bought a £116.6m portfolio from Cabot Properties. Eleven of the buildings are last-mile or urban logistics warehouses. Last month’s RICS commercial survey suggested a subdued outlook for office and retail, with industrial poised to outperform the rest of the market. Within that sector, last-mile logistics represents something of a holy grail. LondonMetric is already one of the most admired REITs around. This week’s deal will do its reputation no harm.
4. Put many eggs in different baskets. At the risk of contradicting point 3, diversification matters too. Take Savills’ H1 results. UK revenues rose by 7% to £274.2m, underlying profit was up 2% to £25.3m. Within that, commercial transaction income leapt 23%; UK resi transaction fees fell 4%. There’s more to Savills’ business than that, of course, but that slightly superficial contrast – plus smaller, faster-growing consultancy and property management lines – highlights the need for broad service lines.
5. Be driven by infrastructure. Urban Growth Company, which is responsible for the new HS2 station in Solihull, has applied to government to expand, a move that could unlock thousands of acres of development land. The application could accelerate delivery at UK Central, the interchange next to Birmingham Airport. It will be watched closely by other stations. How will government support local authorities as they look to bring forward their own enormous projects. And how will this industry respond?
To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette
