Falling hotel occupancy levels and room rates mean that there is less income for hotel investors, many of which have financed these commercial properties through high levels of borrowed debt. As a reaction to the adverse market conditions many hotels are now offering rooms at highly discounted rates. The three and four star hotel market has been hit especially hard and they have had to heavily discount their room rates in order to remain competitive. Holiday Inn / Holiday Express have implemented a credit crunch action plan which includes lowering their rates to around £21 pp in the UK, increased promotions and marketing to their customers and target audience, and asking suppliers for either better terms or lower costs so that they can continue to remain competitive within the hotel commercial property industry.
Budget hotels are not completely recession proof either and companies such as Travelodge have experienced a fall in business stays and leisure at the weekends. However, despite these slight declines they are taking full advantage of the credit crunch’s effects on the commercial property market and have purchased several great value real estate deals that before the recession would have been unavailable to them.
Budget hotel chain Jury’s Inn are also taking full advantage of the increasing demand for budget hotel accommodation that has been created by the recession and are spending £90 million on opening four new hotels across England and Scotland. They are developing hotels in Portsmouth, Bradford, Newcastle and Glasgow as part of their plan for accelerated growth. They are hoping to take full advantage of the trend for business users and British tourists to stay in cheaper hotels and have also secured several lucrative commercial property deals that before the credit crunch simply were not feasible or available to them.
Despite the overall economic downward trend in the UK there have been nationwide sales increases for budget and cut cost retailers and service providers, whether they provide food, clothing or leisure breaks. The UK consumer products and commercial market is becoming increasingly buyer led. Consumers are finding that there are great offers available to them either through heavy discounting of high end brands or through taking full advantage of budget products and services that are also offering promotional pricing and offer based marketing to their customers. Travelodge and Jury’s Inn are taking full advantage of this trend and are setting themselves up for long-term growth with new commercial properties and increased customers.
Despite the overall decline in the UK hotel market cash rich buyers will find that over the next couple of years there will be some great hotel commercial property investment opportunities available to them.
Investment into UK shopping centres has decreased by almost 75% in 2008 according to Cushman and Wakefield’s latest report. Before the credit crunch took its toll UK retail commercial property was experiencing a boom growth cycle with 2004 being a record year for investment in UK shopping centres. However, the economic downturn has meant a record number of shops and retail commercial property have been left to collect dust in what once were busy high street shopping areas.
Welsh and West Midlands towns seem to be the worst affected by the decline. An increasing number of retailers are going into administration in areas such as Holyhead and Milford Haven in Wales and Chelmsley Wood in the West Midlands and there will be numerous shops and commercial properties left empty due to the downturn in consumer traffic and spending. Milford Haven already has a vacancy rate of 30% and Chelmsley Wood in the West Midlands has 28% of its shops left vacant. Despite these already large vacancy figures Experian predicts that both will see further declines throughout 2009. Similar effects to commercial property occupancy levels are expected to be seen at retail parks where due to the loss of MFI and Land of Leather, as well as other prominent high street brands occupancy levels are expected to drop to around 30%.
News for shopping centres and retail commercial property is not all doom and gloom for the UK however. Plans to carry out a major mixed-use development on Brighton’s seafront in Sussex have been restarted by Standard Life Investments after they were put on hold last year due to the adverse market conditions. Plans include significant expansion of the Churchill Square shopping centre as well as other leisure facilities developments. The huge investment and development will transform this particular area of Brighton and hopefully create a stunning new focal point on the seafront.
Towards the end of 2009 UK retail commercial property investment is likely to begin to increase once again especially amongst cash rich buyers. They will have a rich supply of commercial property bargains available to them due to the decreasing values and prices of many real estate properties.
UK commercial property returns in 2008 are set to be the worst recorded for eighteen years and RICS has warned that commercial property values could still fall by a further 25% over 2009 and 2010. For tenants looking for commercial properties to lease this isn’t all doom and gloom as it is resulting in commercial real estate landlords offering increased inducements, incentives and sharp drops in their rents.
The credit crunch has hit the financial services and properties industries the hardest. Canary Wharf is currently one of the most exposed areas in the UK and facing the threat of increasingly empty buildings. As the financial district of London it has been hit hard by the credit crunch and potential tenants have found that there are now many bargain lets to be had.
Despite the negative effects on the financial and properties sectors some industries are in fact seeing and upturn as a result of the credit crunch and are actually seeking out more commercial property. Certain sectors are now actually in their element as a result of Britain’s tightening purse strings. Cash convertors, the Australian founded company that provides pawn broking and other cash raising services has experienced a significant growth in profits compared to previous years which corresponds with the overall decline in the economy and has actually opened a higher than average amount of new stores this year. Their customer base has widened in variety too with it now not being uncommon for city businessmen to visit the store because they need a short-term, quick cash injection.
Other industries experiencing upturns are bailiffs, tax advisers, takeaway providers and any kind of budget provider such as budget hotelier Travelodge or budget supermarket chains Lidl and Aldi. As a result of redundancies and investment downturns some people are having to make huge cutbacks however, the majority are looking for smart ways to save money that don’t affect their current lifestyle too much. For example, having a takeaway or going to a cheaper restaurant rather than fine dining; shopping at a cheaper supermarket and using cheaper hotels for business travel. Companies seeing an upturn despite or in fact because of the credit crunch are in a highly enviable position. Not only are they seeing increased profits but they are also making plans for expansion when the rest of the UK is sitting tight or planning cut backs. Their expansion plans will benefit even further from the credit crunch due to the fact there are now a lot of cut price commercial properties available to these businesses that previously may have been inaccessible.
The commercial properties market is experiencing an international economic slowdown, marking the end of a fourteen year boom. The number of available commercial properties for sale and for lease is at an all time high (unlike conventional homes for sale) due to the fact that occupier demand and new occupier enquiries for commercial real estate has declined at one of the fastest paces seen in the commercial buildings industry since the 1990’s.
The commercial real estate market is becoming increasingly tenant driven and if you are currently looking into commercial properties for lease or for sale there are great deals to be had, especially in central London. In order to try to counteract the declining demand for commercial property landlords are also offering high value inducements and incentives to tenants in order to try to secure illusive new lettings. Tenants are finding that their demands are being met at all levels and that they have a greater bargaining power being able to push lease lengths down at one of the fastest rates ever recorded and acquire some real commercial property bargains. For the first time in a long time the commercial property market is being tenant driven and the majority of tenants are taking full advantage of their newly found and ever increasing buyer power.
As with any kind of market change whether good or bad some companies are therefore actually benefiting from the credit crunch’s effect on the commercial properties market. Decreased rents, increased inducements and better lease terms all mean that in some cases businesses are being able to take out prestigious commercial property leases that previously would have been inaccessible to them.
Of course the downturn is not be taken lightly and many companies with lease agreements already in place are planning to reduce their commercial property lettings spaces in a desperate attempt to free up some much needed cash flow. Lengthy lease agreements mean that this often isn’t a readily available option but those with tenant break clauses in place are thankful for their foresight and careful planning. The companies most affected are not surprisingly part of the industries that have been most disturbed by the credit crunch as a whole and include those in the retail, leisure, financial services and manufacturing sectors.
Investment property is losing its appeal rapidly so landlords are going to have to continue to come up with new ways of making their commercial real estate more attractive in order to decrease the amount of commercial properties for sale and for rent that are currently available. Despite the current market unrest some companies still view commercial property as a good long term investment and are sitting tight whilst they weather the effect the credit crunch storm has had on the real estate and commercial properties industry.
The commercial properties market may be experiencing a current downturn but the industry’s prestigious RICS awards are as popular as ever. Developers and companies in the commercial property industry are finding themselves having to look out for new ways to stand out in this increasingly tenant driven market. Buildings and land no longer lease or sell themselves and developers have to be ever vigilant in order to remain successful. The publicity, raised awareness and prestige that a commercial property award brings could be just what businesses involved in the industry need in order to stay ahead in these difficult times.
The awards annually celebrate built and natural environment projects that demonstrate excellence in the categories: Regeneration, Building conservation, Community benefit and a commitment to value for money and sustainability. Investment property is no longer a viable option for many large financiers so awards like this help to bring the buildings industry back to the forefront of investors’ minds.
The 2008 RIC awards winners were announced in October and the winner of the esteemed project of the year award went unsurprisingly to St Pancras International. This commercial property project is an example of real estate excellence and is a magnificent £800 million architectural restoration and extension of a unique London landmark. The station that first opened in 1868 was seen as a stunning accomplishment of Victorian engineering and commercial property. In today’s London the St Pancras International station now houses the Eurostar and has been dubbed the “cathedral of railways”. It is far more than simply a train station though and its recreational value rivals that of large international airports and shopping centres. It has been redeveloped as a grand retail and hospitality destination with many businesses there including top quality retail outlets and even Europe’s largest champagne bar!
Previous RICS awards winners include the Spinnaker tower, Portsmouth which is a 170 metre tall visitor attraction that overlooks the historical Portsmouth harbour and the Solent and the Eden Project in Cornwall.
Many of today’s headlines are quite rightly concerned with the international downturn the credit crunch is causing. Tales of redundancies, bankruptcies, slashed sales figures and financiers losing millions from their real estate investments are reported on a daily basis. Consumer confidence is falling and Great Britain is officially on its way to recession. One of the hardest hit sectors is the properties industry with realtors worldwide experiencing huge downturns in profits. Commercial properties simply aren’t leasing or selling and personal property sales are also at an all time low. Land is no longer worth its weight in gold and financiers are panicking and rapidly decreasing their investment property portfolios. However, some industries have benefited from the credit crunch. One of such industries is the discount food sector which has been experiencing unprecedented growth during what they are calling a credit crunch boom.
Aldi one of the key discount food retailers has recorded a record 23.9% year on year growth for the year ending November 2008 and plans to open between forty and fifty new stores a year across the UK and Ireland in a massive commercial property investment. One of Aldi’s key commercial objectives for the following year is to join forces with discount hotelier Travel Lodge. Aldi and the budget hotel chain plan to develop joint hotel and store sites throughout the UK and are currently undertaking a major commercial properties investment. The first joint hotel and store site will be in Newquay Cornwall and is due to open in the autumn of 2009. Travelodge are planning to develop a 74 room hotel above Aldi’s existing Newquay store. The next joint venture will be undertaken in Middlesbrough and will involve the pair becoming involved in a commercial property deal to launch a joint store and hotel in November 2009.
The Managing Director of development for Travelodge has reported that this new venture is enabling both companies to send out a clear message to the UK that the UK budget sector is going to make the most of the economic downturn. The credit crunch means that there are more commercial properties for sale and for lease available on the market than ever before giving Travelodge and Aldi availability to commercial property that wouldn’t have been accessible to either of them before.
The budget food and hotel sectors aren’t the only industries benefiting from the credit crunch and several online dating companies have seen an unprecedented increase in new members since the economic downturn has taken hold. New members are reportedly looking for new ways of meeting people that don’t involve spending money out on the town.
According to the annual strategy review by global property fund manager La Salle Investment Management, the UK commercial properties market could be a great long-term investment. La Salle has reported that the UK commercial property market has fallen first and hardest therefore now making it one of the most attractive areas in terms of investment.
This is a great bit of news in an otherwise gloomy time for commercial property and should hopefully generate lots of interest amongst real estate investors over the next year. Due to the huge downturn UK commercial properties should offer some extremely appealing return on investments and provide investors with some great value deals in 2009 and 2010.
The commercial property market has been one of the credit crunch’s biggest victims. A previously booming industry has seen huge downturns and is still expected to fall further in value. Previous commercial buildings that once had leasing waiting lists are now standing empty with landlords having to offer all kinds of inducements and incentives in order to entice tenants in.
Dominant high street brands such as Focus and Land of Leather are some of the latest retailers that have had to seek concessions from their landlords as the impact of reduced consumer spending has taken its toll. Landlords and businesses have to remain ever reactive and innovative in order to stay afloat during these hard times. UK commercial property owners do appear to comprehend the downturn and are remaining vigilant and working out two-way deals between themselves and their tenants that are in all parties’ best interests. If you are currently looking for commercial property for lease or for sale within the UK there are some great bargains to be had.
Foreign investors have cottoned on to this and see the UK as an ideal area for long-term commercial property investment. A high percentage of office blocks, retail outlets and other commercial buildings are likely to come under foreign ownership over the next two years where investors will be taking full advantage of the current value declines within the industry. Previously iconic commercial buildings could be sold off at bargain prices to investors willing to wait for the market to right itself before they see returns on their investments.
The global credit crisis continues to affect investment into the commercial properties sector. Commercial property returns over the last twelve month period are looking to be close to the worst twelve month real return on record which occurred in 1974. RICS are predicting that over the next two years things are going to get even worse with the decline in capital values far outstripping the slumps of the 70’s and 90’s.
Investors are pulling out of commercial property fast and in doing so are leaving a very much tenant driven market behind. These are unstable economic times and tenants are looking to landlords to help them out with their commercial property lease agreements. As a result landlords are offering better value inducements, incentives, lettings agreements and rents than ever before in order to ensure their buildings do not become empty.
Despite the huge downturn in commercial property investment there are still some areas within the commercial real estate sector that are deemed viable investments. Student accommodation investors are still hoping for a successful new year and are counting on the fact that in times of recession many people put off entering an uninviting job market that is often only looking for experienced employees and look instead to improve their long-term professional prospects through training, qualifications and academic achievement. This combined with the fact that there is a shortfall in modern halls of residence and you get a potentially great investment formula in spite of the recession. Many commercial buildings are emptying fast, already standing vacant or are nowhere near full occupancy however, this formula is likely to mean that any commercial property investment into student accommodation is likely to see almost full occupancy even if some of the students drop out, which inevitably happens every year with a small percentage.
The worsening economic conditions have now taken their toll on almost every commercial property market in the world, according to a global survey of real estate surveyors. The past few months has shown a sharp decline in the need and demand for real estate in areas that had previously appeared immune to the current economic crisis. In particular parts of Asia and Eastern Europe have been affected with realtors’ allegedly reporting record downfalls in the demand for commercial properties. The Indian commercial property market has been especially hard hit and one of the biggest slumps in real estate values has been seen in Eastern Europe a region that up until recently was experiencing a boom in their building and developer industry. Areas such as Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Turkey and the Ukraine have all reported a fall in land and real estate values, with Russia being the hardest hit country.
The credit crunch has literally burst the Bulgaria property bubble with financiers desperately trying to sell any investment property they have there. Bulgaria’s economy has been left in a serious state due to heavy investments into tourism and commercial property in preference to expenditure on manufacturing and exporting.
Russian commercial property investments are also being put on hold as the now global credit crunch sets in. Developers in Russian cities are postponing projects due to lack of capital, with shopping centres and malls being the most affected. Major cities such as St Petersburg and Moscow are feeling the financial pinch as well as regional cities whose plans for expansion have had to be put on hold.
However, some countries are showing more resilience than others to the economic downturn. RICS research has shown that China’s commercial property market has shown more resistance with some actual increases to be expected in the number of commercial property that is being leased and sold throughout China in the upcoming months.
Central London is another city that has been hit hard by the commercial property down turn with investment funds that specialise in retail developments and office blocks being especially knocked by the slump. Retailers are being encouraged to fight the downturn in sales this Christmas by ensuring they provide unrivalled brand value, competitive consumer focussed pricing and value added promotions that encourage repeat purchase activity as opposed to the usual seasonal glitzy TV campaigns.
Expert commercial property predictions remain extremely mixed. It appears that the long-term effects of the credit crunch have left even the commercial property specialists confused.
Looking at current and past performance figures we can see that there is physical evidence that commercial property rents are continuing to decline across Europe, the Middle East and Africa (CB Richard Ellis’s latest research) and that the fallout from the recession is persistently affecting SMEs and large corporations alike. Even Tesco our biggest supermarket chain are reducing their spending on new properties in order to decrease their costs during the recession. However, this doesn’t quite tell the full story and in a similar pattern to Sainsbury’s and the other large grocers Tesco are still planning to expand their UK selling space by six to seven percent each year by developing their existing stores. Comparable to residential home owners who rather than looking to purchase larger properties are instead looking to make the most of the space they already have.
The declining rental values are visibly affecting UK commercial property values and the Royal Institute of Chartered Surveyors (RICS) believe that our commercial property market is only now halfway towards recovery and won’t recuperate for at least another two years. These predictions are in stark contrast to other industry experts who believe that 2009 will see the end to the current declines.
Confidence in commercial property investment does appear to be improving however with investors feeling far less pessimistic than at the end of 2008. This combined with the current weakness of the pound and the fall in commercial property values over the last twelve months mean that investor interest in London commercial property has increased significantly over the last month alone. Foreign investors are leading the way with many deciding now is the prime time to invest into UK commercial property.
Despite the increased interest investors are being warned that rents are still likely to continue to fall throughout 2009 as vacancy rates increase and the recession takes its toll. Tenants are continuing to enjoy the declining rents which simply didn’t occur at the same pace in previous commercial property recessions due to the fact that leases are now much shorter and more flexible with increased break clauses.
