NovaLoca Blog

Remember back in April we blogged about the Carbon Reduction Commitment (CRC Energy Efficiency Scheme), the thorny issue of the position between landlords and tenants, and how the results of the British Property Federation’s working party on the subject were eagerly awaited? Well, they’re in. But they don’t show any consensus on the key issues – even the landlords that participated can’t agree among themselves. So a standard CRC lease clause is some way off.

The BPF says the majority of respondents from across the property industry believed that tenants in buildings belonging to landlord participants should contribute in some way towards the cost of CRC participation, but “opinions varied as to how far they should do so”. There was no agreement on whether administrative costs should be borne by the landlord as a “head office cost”, since the CRC imposes obligations on the landlord’s corporate group.

There were concerns, among the minority who believed tenants should not contribute at all to the landlord’s costs in participating in the CRC, that to do so would have negative effects on the liquidity of the property market. This could distort rents, as tenants might not be willing to furnish market rents for leases that contained extra obligations arising from the landlord’s participation in the CRC. There were also clear differences of opinion about alternative ways to meet the costs of CRC participation, such as higher rents per sq ft.

Most respondents did agree, however, that the costs and benefits of the scheme to individual buildings and tenants should be determined by reference to actual energy use. And if the costs are not passed on to tenants, respondents agreed that the volatility of energy prices and corporate social responsibility issues would be incentives for landlords and tenants to work together on energy efficiency – carbon emissions reduction after all is the aim of the scheme.

The BPF has concluded that “it seems, therefore, inevitable that one single, industry-standard, CRC lease clause is unachievable in the short term,” but still sees merit in highlighting particular approaches that landlords may decide to follow. Its Industry Working Party is thus working on a second edition of “The Carbon Reduction Commitment: A Guide for Landlords and Tenants”, and this is expected to be issued later this month.

CB Richard Ellis has poached Neville Moss from Jones Lang LaSalle to become its new head of retail research for the Europe, Middle East and Africa (EMEA) region.

Moss formerly held the same role at JLL. CBRE says he has more than 20 years’ experience in research and consultancy for retailers and retail property companies.

Nick Axford, senior managing director of global research at CBRE, said: “We are delighted to have attracted such a high-calibre retail specialist.”

“Neville is highly regarded within the retail property sector and will undoubtedly make a substantial contribution to CB Richard Ellis,” he added.

The best time in two generations to invest in investment-grade Central London commercial property? That’s what the managers of the new Rudolf Wolff Central London Commercial Property fund think, according to Investment Week.

The new fund aims to produce net annual income of between 5% and 7% and total returns of 15%-20%, investing in London properties with strong anchor tenants. The target maturity of the portfolio is 5-7 years.

The fund is being run by  Robert Hacking-Brian, Ian Besley and Anthony Farrant, previously of Dawnay Day. They say Rudolf Wolff has deliberately waited until after the recent Budget to launch – they are confident that “recession-proof” commercial properties in Central London will continue to attract foreign investors, safeguarding stability.

“During 2008 and 2009 the Central London market was oversold in anticipation of the high vacancy rates seen in the 1990s recession,” Farrant said. “This overhang has not happened as there were far fewer speculative developments underway at the top of the market. This means we are beginning to see a sharp rebound in both rental and capital values, and seek to capitalise on this trend.”

While fund managers’ confidence has been shaken in recent months by the economic downturn, major businesses still appear optimistic – particularly regarding their own prospects. These are among the findings of the latest quarterly Lloyds Banking Group’s Commercial Property Confidence Monitor.

The survey, conducted during May, came ahead of last month’s Emergency Budget and took place during the worst of the worries about the Greek economic crisis. This is bound to have had some effect on the results and perhaps explains the reduced confidence among fund managers compared with the other property professionals surveyed.

Brian Darling, real estate director at Lloyds Banking Group, said: “The market has reacted well to a period of uncertainty. Although confidence has taken a hit, property professionals remain largely optimistic about the second half of the year.”

With regard to property values, businesses are still on balance expecting increases in the next three months, but principals at medium/large businesses and fund managers have both slightly reduced their net positive position. Looking at sectors, most groups surveyed said they expected housebuilding to show the best performance during the next 3-6 months, although fund managers expect offices to be the major success area.

They think it’s all over – well it is now, as we can reveal that the winner of MJM Marketing’s World Cup competition is Julie Hobbs at King Sturge.

Everyone who requested a quotation from MJM Marketing during June had their names entered in the competition – and on July 1 we pulled Julie’s name from the hat.

Julie, who manages the marketing for the industrial team at King Sturge in London, wins the fantastic Artsportique limited edition signed picture of Geoff Hurst scoring his third and England’s fourth goal to win the 1966 World Cup.

The less said about England’s performance this time round the better, we feel – but well done Julie, who declared: “I never win anything!” as Miranda Munn presented her with her prize this week.

Moorfield and Hines have today confirmed their £200m purchase of eight buildings on the Brindleyplace estate, as rumoured earlier in the week. For more details, see Property Week.

Last week’s upbeat comments from Scottish Widows Investment Partnership regarding the prospects for commercial property have been challenged by Jason Butler from Bloomsbury Financial Planning.

Butler says in an interview with FT Adviser that SWIP’s prediction of total returns of 8.5% per year until 2015 is “overly optimistic”, and does not take the consequences of the recent Budget into account. He added: “With such a volatile backdrop I do not know how the commercial property market is going to thrive. I think investors should keep their exposure to property the same as it was three years ago and not increase it.”

At Citywire James Smith is highlighting the split in opinion among property professionals as to the outlook for the commercial property market in general, with those who like the yields to be had from property investment pitted against those who are worried about the sector’s debt burden.

If you are feeling charitable while you ponder property’s prospects, why not take a look at the latest event from King Sturge in its charitable efforts to celebrate its 250th year. Pianist (and principal property auctioneer) Felix Rigg has recorded a CD of classical music (which can also be downloaded as an MP3) to raise funds for the male cancer charity Orchid.

North West property experts Place North West have interviewed a number of property professionals in the region to look back over the first half of 2010 and give their views on prospects for the rest of the year.

The scale of public-sector cuts to come means that public bodies are going to have to consider how best to use their property assets. Phillip Woolley, partner at Grant Thornton, says the public sector will need to think about asset sales, joint ventures to cut costs and deals such as sale-and-leaseback or moving services and departments to share buildings. John Holmes, head of planning at Hill Dickinson, says we have to wait for the Localism Bill due nearer the end of 2010 to find out more about how the government plans to fill the gap created by getting rid of regional special strategy bodies.

John Jones, partner and head of corporate finance at Beever and Struthers, points out that the market for office space in the North West is quite different from that in London. There is an oversupply of offices in the Manchester area and little or no development activity is likely until demand returns, he warns. Many property companies are carrying huge debt burdens and the lack of demand means there are no easy solutions for their funders, he adds.

At Hill Dickinson, head of retail property Pam Jones says there have been fewer failures in the retail sector in the North West than expected, but it has not been an easy ride so far this year. In Bolton, Iain Mowat at the Vinden Partnership agrees that retail has been suffering from the credit crunch and warns that with spending set to be squeezed further, the situation is unlikely to improve soon. He adds that industrial has been one of the better-performing sectors so far this year as oversupply is diminishing and businesses are taking the opportunity to acquire high-quality industrial space that might not have been available a couple of years ago.

Press reports indicate that a major deal is about to go through on Birmingham’s Brindleyplace mixed-use estate, involving the sale of eight of its 11 office complexes.

It has been reported that Moorfield and Hines have lined up a £200m bid. The Birmingham Post quotes Gary Taylor, joint managing director of Argent, which manages the estate, as confirming that Argent has received an approach to acquire eight of the office properties in the estate.

“We are not in a position to confirm the identity of the potential purchaser, but we have put this offer to our investors for their consideration,” he added. Argent will continue to manage the 1.6m sq ft Brindleyplace estate if the deal does go through.

The Birmingham Post says the purchase is set to be completed in the next few days and would be the largest ever deal for Birmingham’s office investment market.

Earlier this month Drivers Jonas Deloitte relocated to Brindleyplace following its merger and at the time Gary Cardin, head of Drivers Jonas Deloitte Birmingham, said: “The recent relocation of the Institute of Directors to the estate has demonstrated what a commercial hub it has become within the city centre”.

Lambert Smith Hampton has been busy collating data for the UK market for office space to buy and for let, and says the market took its first steps towards recovery after take-up reached 5.5m sq ft in the first quarter of this year.

LSH says in its new National Office Report 2010 that Central London office space has continued to lead the way, accounting for nearly 62% of the market’s activity in Q1 after transacting 3.4m sq ft – the highest quarterly take-up in this region in five years and more than three times the amount taken up in the first quarter of 2009.

Tony Fisher, national head of LSH’s office agency, said: “Central London is expected to continue to dominate take-up across the UK, before the recovery spreads out to the provincial office markets during the next 12 to 18 months.”

Nearly 48% of all take-up was for Grade A space, but LSH points out that with only 22% of available office space on the market being Grade A – 25% of which is in Central London – this imbalance between supply and demand could spell trouble ahead, particularly given the severe lack of development that took place throughout 2009.

Looking at availability across the major UK office markets, LSH says availability in the South East is the highest at 17.1%. Excluding Central London, the North and South West follow, with availability of 15.9%. On average, availability in key locations was 12.7%, the report says, up from 11% at the end of 2008.

Nick Lloyd, head of capital markets at LSH, said: “Despite any immediate prospect of rental growth, there is now strong demand for prime product in the major metropolitan cities and established locations such as the Thames Valley.”

LSH has calculated an activity ratio for each of the 37 locations in the report, looking at average 10-year take-up rates and total stock of floor space. The three locations that stand out above the national average of 4.6% are Bristol, Cambridge and Newcastle.

Tony Fisher commented: “Bristol and Newcastle’s office markets have been sustained over the past decade by occupational demand from the public sector. Cambridge’s buoyancy is as a result of an influx of biotech business and the growth of science parks surrounding the university.”

He concluded: “The market will continue to recover as long as vacant second-hand office space is refurbished to meet the requirements of the next generation of occupiers, rather than allowing the market to stall while brand new Grade A space is being constructed.”