interview
T
he commercial property
market has enjoyed a
significant recovery
since last spring, a
recovery that is gradually
strengthening and is becoming more
broadly based.This was predictable;
property is on the supply side of the
economy and we supply the premises
for business.As economic confidence
improves, the demand for real estate
increases.Many tenants are no longer
looking to break their leases, but to
increase their space and secure their
occupational requirements for the long
term. Property values are responding
to the rise in actual and forecast rental
growth and there is much interest from
both domestic and overseas investors in
buying UK real estate.While it is early
days, these are all good signs.
London remains one of the best-
performing markets, buoyed partly by
interest in the traditional office markets
of Mayfair and the City from foreign
investors. But other areas also have
exciting prospects, such as Farringdon,
which, on completion of Crossrail, will
be at the centre of one of the biggest
commuter hubs in Europe. Outside of
London, cities such as Manchester and
Edinburgh have recovered to become
strong locations, while Cambridge is
a superhub of growth.
Retail property of the right kind
remains attractive, despite the well-
publicised failures of a number of
retailing companies.Many retail
parks and some shopping centres are
still doing very well, as they provide
the modern retailing format that the
retailers demand at a rental price
point that works for them. For the
experienced investor, these managed
retail environments present interesting
opportunities to add value by improving
the tenant mix, further developing
sites, improving lease profiles, and
ultimately rental levels and values – a
process known as asset management.
For example, in Dundee we have
inherited a property that we hope to
turn into a development. It is very time-
consuming, but is an exciting project
that has the potential to transform the
investment.As a rule, we do not invest
on the high street as there is often little
or no opportunity to exert any control
over the environment, and therefore
little opportunity to add value.
At Orchard Street, we believe there
are three fundamental requirements
for investing in property: location,
which is key to any investing decision;
that the property is of the right quality
for that location; and that there is tenant
demand at the right rental price.While
we can’t change the location of a
building, we can invest as long as we can
see a path to achieving all three
fundamental investment characteristics.
If, for example, the location is good but
the quality is not right, and if we can buy
the property at the right price, we can
refurbish it and add value.The key is to
deliver the right product into the right
location at the right price.Vacancy rates
in the St. James’s Place property
portfolios are between 1% and 5%, well
below the industry average of 9% to
10%. Our aim is to generate value
growth above general market
movements; and careful stock selection,
allied to active asset management, is
central to achieving this.
While the market is deep,
competition for investments is
increasing.Many institutional investors
are seeking to increase their allocation
to commercial property, attracted by
the strong stable income characteristics
andthe potential for capital growth that’s
linked to economic growth.We estimate
that the average allocation to property
has risen from 7.5% to 10%, up from
between 5% and 7% five years ago.
Indeed, some major global investors are
committed to investing up to 25% of
their funds in real assets such as property
and infrastructure. Lastly, it is interesting
to note that there is a marked increase
in the availability of debt finance to buy
property for those who need it, which is
increasing liquidity across the market.
The property market has endured a
difficult time since the financial crisis
in 2007-08, along with the rest of
the economy. However, the recovery
appears to be entrenched and we are
confident that the strong forecasts for
the coming years are well founded.
fund figure
Viewpoint
ChrisBartram,
OrchardStreet InvestmentManagement
£14.2m
The Property fundmanager on a recoveringmarket
Stadium Retail Park,Wembley,
bought November 2013
Matthew Stylianou
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