Recent research from Independent Property Analysis and ConduitRE confirms the trends in the property investment market that we are seeing, namely a continuing focus by investors on residential and industrial assets – the new buzzword being ‘beds and sheds’.
The reference to residential assets refers to the Private Rented Sector (PRS) rather than the market for individual homes and with respect to industrial assets or ‘sheds’ the reference is to both manufacturing and warehouse/distribution premises. It is this latter category that remains the darling of the property sector for now as the increasing shift to online retailing as well as the restructuring of global supply chains fuels demands for big box warehousing at key transport nodes and smaller ‘last mile’ distribution units for the likes of Amazon and Hermes on the edge of major towns and conurbations.
Independent Property Analysis and ConduitRE suggest that ‘Value-add’ investments are becoming the new ‘Core-plus’ in a market where there is a general scarcity of good investment opportunities particularly those offering long leases with the rental income underpinned by strong covenants. Nonetheless, with our strong regional network, we are well placed to source this type of opportunity frequently on an off-market basis.
We are increasingly being asked by Investors whether we are seeing a flood of distressed properties on the market. The answer is a qualified no; this current crisis is very different to 2008 and previous recessions before that in that there is currently no banking crisis, borrowing levels are generally low, interest rates are at record lows and property values are not in free-fall. The obvious exception to this is the Retail sector where a perfect storm is decimating the sector. There are opportunities for the brave but in our view only for those with a long term view and a balanced portfolio.
We think that we will start to see more opportunities in September and particularly as we move into Q4 following the next ‘quarter day’ (29 September) when some investors will be put under increasing pressure to rationalise their portfolios if rent collection rates are lower than they need to service debts.
However, to take advantage of these opportunities investors will need to have dry powder at the ready as well as purchasing structures in place as liquidity is only a solution for a distressed seller when it can be deployed quickly.