Have we seen the worst of the property recession? There is growing evidence to suggest that is the case.
The prime residential market in London is on the rise again, though it is still down on the 2008 peak. Knight Frank are reporting that:
– Prime house prices in central London rose 1.3% in September
– The annual rate of price change has improved to -8.9% (from -12.0% in August)
– Average prices are still 18% below their March 2008 peak
– Price growth in some areas has hit 9% since March this year
In the retail sector Land securities have been providing concessions to their tenants in the last year to help them through the worst property recession in living memory. The traditional quarter rent days have been a contentious tradition for years and retailers never looked forward to finding three months rent in advance. This pushed some retailers like Woolworths over the edge when the quarter day arrived.
Land Securities introduced their Clear Let lease that introduced monthly rent payments in an effort to keep hold of increasingly rare tenants. But they are warning that concessions might become increasingly difficult as they rebuild the value of the portfolio for their investors. A spokesman recently said
“British Land is seeing more demand from new and existing tenants. In a well-functioning market both landlords and tenants will push as hard as they can and try to get as much as possible out of the other before settling somewhere in the middle. It is a question of who has the upper hand, and where there is good demand from tenants and low vacancy rates, landlords do not need to give more.”
Things are changing for both landlord and tenant. Yields are beginning to harden with CBRE reporting that in September prime shopping centres yields saw a 25 point improvement to 6.85%.
It’s clear that with reducing stock (due to almost zero investment in the last 24 months)combined with a more stable retail environment, landlords will find fewer reasons to succumb to tenant demand for hard bargains and concessions.