Fisher German Commercial Newsletter Summer 2017




Politicians can't stop property rock & rolling along

 
 
 

The snap General Election was a disaster.  Far from providing the promised ‘strong and stable’ circumstances for a great Brexit deal, we are left with political turmoil.

And we all know turmoil is bad for business.  As indeed, I believe, would be the remote prospect of a Labour government, with Jeremy Corbyn still saying ‘we are ready to serve’.

OK, he did pull tens of thousands incredibly as he gave his ‘build bridges, not walls’ speech on the main Pyramid stage at Glastonbury – and he seems to be warming to his new rock star status among the young and disaffected.  

But with the festival, holiday and hospitality seasons upon us – and a sustained hot spell to boot – I still see plenty of reasons to be cheerful, as Ian Dury and the Blockheads once said!

Firstly, the lack of an overall Conservative majority means Theresa May has to build a consensus – or she will fail.   

We have seen this already with the concessions to the DUP to secure a confidence and supply agreement, then last minute policy changes on NHS-funded abortions for Northern Irish women ahead of the vote on the Queen’s Speech in order to avoid a backbench defeat.

It’s not commercial property or even business, but it points to an outbreak of common sense which may also prevail in the Brexit negotiations.  We can but hope!

Secondly, it seems clear to me that Germany and France want a deal with the UK, whatever the politicians say.

I spent time in Germany recently and there I sensed a deep sadness that we are leaving: mainly for the loss of a politically stable democracy, but also a defender of liberal values and strong trading partner.

Thirdly, the weak pound since we voted in the referendum to leave Europe has made UK products and services more competitive so our manufacturing exports are on the rise.

Fourthly, investment demand is very strong, with the fact that foreign currency is worth more in sterling only serving to increase that pressure further.

So, on the ground, in commercial property, we are still taking lots of calls, receiving loads more internet and email enquiries and seeing deals trundling along nicely.

Activity is further aided by the lack of supply, especially of industrial units, voids are not rising significantly and the fact that interest rates are set to remain low.  All of which keeps property people happy.

So, I pronounce commercial property prospects as pretty damn fine, on the whole – and I would even say excellent, but for the games politicians play.

Much like Glastonbury, it could be said.  After all, Jezzer really should leave Glasto to the likes of the Foo Fighters!  They’re all together more entertaining!

Duncan Bedhall - Partner
 



Receding High Street may force rates change

 
 
 

The business rates regime is in a right old pickle.  I wrote three months ago about the chaos and confusion created by the delay of the 2015 revaluation to this year – and the apparent last-minute U-turn in the March Budget under pressure from business groups to grant certain reliefs.

Since then, the 2017 rates year has commenced.  We’ve also had the small matter of last month’s inconclusive snap General Election returning a minority Conservative government.

That has created further political and economic uncertainty with the consequent impact on the Brexit negotiations which are just beginning in earnest.

But, as the politicians dither and tinker, I wonder if broader business and social trends might force a more radical overhaul of the ratings system and its place in the wider tax raising puzzle all governments must grapple with.

First, a bit of context. The Office of Budget Responsibility reported that &28.1 billion in business rates was collected in 2014-5, representing 4.33% of the total UK tax income achieved at an average in-year collection rate of 98.1%.  

In 2015-6, that figure had risen to &29.1 billion, while forecasts for the following years start at &28.8 billion for 2016-7, while the next five years under the new regime and revaluations start at &29.6 billion and climb to &33.7 billion by 2021-2.  

Essentially, business rates are calculated by multiplying your property’s ‘rateable value’ – in the 2017 list a reflection of the Market Rent as at 1 April 2015, based on an estimate by the Valuation Office Agency – by a ‘multiplier’ set by central government.

This year, contrary to predictions, saw a 1.8p reduction in the standard business rates multiplier to 47.9p – or 46.6p for small businesses.  But in 1990-1, the standard rate was just 34.9p!

Online retailers have applied growing pressure on the traditional high street, with town centres historically attracting higher rents – and consequently higher business rates.

Retail government adviser and guru Mary Portas predicted that a third of independent shops could be killed off by the latest revaluation and rates regime.

M&S, one of Britain’s largest retailers, said last year that it planned to close 30 UK stores and convert 45 more into food-only shops as part of a business overhaul to slash the amount of shop floor space devoted to its ailing clothing ranges.

In April, it announced the first six closures, all in town or city centre locations, as shoppers increasingly turn online or favour out-of-town retail parks where parking is plentiful.

Similarly, Debenhams announced plans in April for up to 10 of its 176 stores to close, under new chief executive Sergio Bucher, who intriguingly joined the retailer from Amazon in October last year.

He polled 16,000 shoppers before drafting his turnaround plan to focus on ‘social shopping’ and making store visits a ‘fun leisure activity’.

Martin Lane, managing editor of price comparison web site www.money.co.uk said that the retailer still faces major headwinds.  

He said: “High-street retailers are really struggling to compete with our nation’s love affair with online shopping and the department store has done little to shake up its fading image,”

Online retailers have an advantage with lower costs as larger out of town distribution warehouses have lower rents and therefore lower business rates.

Clearly, other traditional retailers will be considering their property strategy and portfolios.

The impact is not just on retailers, or the town centres they may vacate, but on landlords too. Lower occupancy rates will result in falling rents and landlords becoming liable for the business rates of vacant properties after three months.

On a positive note, we are seeing an increase in the value of commercial development land outside town centres driven by a requirement for storage and distribution centres.

But the days of central government being able to rely on business rates for a reliable and increasing share of the tax take may be numbered.

Though, while the government generates a 20th of all tax from business rates, I guess there will be very little incentive on their part to undertake a major overhaul!

Rob Haigh – Associate



Check all buildings in light of the Grenfell Tower fire

 

The tragic events at Grenfell Tower last month may yet prove to be a watershed moment in building safety.

The following week the Government issued an urgent message to owners, landlords and managers of private residential blocks in England and Wales, offering free initial safety checks for cladding to be paid for by the government.

In the message, Melanie Dawes, Permanent Secretary at the Department for Communities and Local Government, said: “It goes without saying that owners/landlords have robust fire assessments for their properties.

“It is likely that many of these assessments do not consider the type of cladding used in a building and we would recommend you look again at your assessments.”

Downing Street said English councils estimated that 600 high-rise buildings used similar cladding to Grenfell Tower.

Three weeks after the tragedy, staggeringly, all 181 out of 181 tower block cladding samples have failed combustibility tests by The Building Research Establishment, whether owned by councils, housing associations or private landlords, Communities Secretary Sajid Javid announced last week in an oral statement to Parliament.

At the time of writing, we know at least 80 people died in the disaster, though the death toll may yet rise much higher, so it is absolutely right that residential tower blocks are the immediate focus of safety checks.

But thousands of other buildings may well use similar cladding – and the public inquiry may yet conclude that many other factors contributed to the disaster.

Curiously, the lack of sprinklers and the inability adequately to respond to residents’ safety concerns seem to have been largely forgotten in the headlong rush to ‘curse the cladding’.

Many schools are now rapidly conducting checks.  Newly promoted Premier League football club Brighton is checking the cladding used on its stadium and training ground after it was revealed it was made by the same company which produced materials used on Grenfell Tower.  

Indeed, owners, landlords and property managers of buildings as diverse as office blocks, factories, warehouses, entertainment and leisure venues and shops should treat Grenfell as a wake-up call.

If ever you needed the prod to contact your property managers about ensuring you are fulfilling all your buildings regulations, fire safety and inspection and Health & Safety checks, then Grenfell has provided one.

In particular, I would encourage owners and landlords of sites they have refurbished to review their recent works and satisfy themselves that they have done everything they can to protect life and limb.

Landlords face various duties under the Occupiers Liability Act 1957, the Landlord & Tenant Act 1985 and the Defective Premises Act 1972 – as well as the specific requirements under tenancy agreements.

Inevitably, human lives are rightly the focus here.  But it is sensible planning and risk management and mitigation to check for the safety of undoubtedly expensive buildings, plant and machinery too.

Please contact us if you have any concerns about buildings you own, manage or occupy.

Dan Ballard - Partner
dan.ballard@fishergerman.co.uk



Commercial property development back

 
 
 

Development is back in vogue with a genuine appetite for potential sites despite the current economic and political uncertainty.

We ran an article in our summer magazine on the increasing attraction of rural areas to residential developers with no end in sight to the UK’s housing shortage.

The ongoing under supply is driving activity alongside continued government support for the Help to Buy scheme and HCA funding behind housing associations, who are increasingly looking at open market development as well as social housing.

But homeowners need jobs too.  So, even in the uncertain climate, the need for new employment sites will continue.

This demand for employment land has pushed industrial land values up considerably and in some key areas of the country, prices have reached almost &600,000 per acre, rivalling or even exceeding residential land values.

So, where residential development has historically provided higher returns, now things are changing and the development of new industrial buildings is right back on the agenda, presenting great opportunities in commercial property.

The exciting thing from our point of view is that Fisher German is ideally placed to advise developers, landowners and investors from our multi-disciplinary perspective and with a geographic spread that matches well the key areas where development is sought after.

So, we can easily flex to meet changing priorities within central government and local authorities as to acceptable planning uses.

And we can support increasingly popular mixed-use schemes and assist with change of use, for instance from pubs to residential or agricultural to commercial.

Furthermore, with many long-term landowner clients of the firm, we have access to the broadest spread of potential land holdings for development –  alongside the most up-to-date database of potential buyers.

In particular, we’re seeing more developer buyers in the market for small to medium sized development sites in key employment zones across the Midlands and up the M1 and M6 corridors.

The sustained genuine interest and unsatisfied demand has grown over the past two years with a recent spate of lettings in the key 20,000-50,000 sq ft bracket in the West Midlands limiting supply further.

Chase Commercial’s 30,000 sq ft Ratio:Park development in Kidderminster is a good example of a smaller scale industrial scheme.

Tills Direct has bought the first 1,600 sq ft unit of 10 on phase one of the new enterprise park specifically for small and medium-sized enterprises.  A second phase of 11 units will follow.

Worcester council approved plans for 240,000 sq ft of employment space supporting 500 new jobs at the 20-acre Nunnery Park gateway scheme on the edge of the city.

The St Modwen scheme includes nine trade counters, a Greene King family pub restaurant, a drive-through KFC restaurant and a car showroom.

We’ve also just brought to market a fascinating development opportunity for ‘loft style living’ on both banks of the River Avon in the centre of Tewkesbury.

A mixed residential, retail and leisure development is anticipated, with both new build and the conversion of the former Healings Mill Brewery Building and associated buildings.

It all points to exciting times for commercial as well as residential development.  If you own a site or are looking to develop or invest in opportunities, we’d love to help you out, so please get in touch.

Richard Tomlinson – Partner



Love it or loathe it, HS2 ploughs ahead

 
&6.6 billion worth of civil engineering contracts have today been awarded to various companies on HS2 Phase One.  This will see trains rolling into the new Curzon Street station in Birmingham by 2026. Government estimate this investment could create up to 16,000 jobs.

Phase 2a which is the portion of the scheme from Birmingham up to Crewe, and for which progress has been accelerated, is expected to open one year after Phase One.  The Hybrid Bill for Phase 2a has today been published and deposited into Parliament.
 
Likewise, we now also have route confirmation for the top of the HS2 ‘Y’ shape - the Western leg from Crewe up to Manchester and the Eastern leg from Birmingham up to Leeds with a detour into Sheffield.
 
We are acting for clients affected by all three phases across the HS2 scheme. With a vast amount of experience and knowledge, we have the resource that only a national firm can provide and also the in-depth technical knowledge and experience at a local level.
 
Now that the Phase 2a Hybrid Bill has been published or to give it its correct title the 'High Speed Rail (West Midlands - Crewe) Bill 2017-19' up-to-date scheme plans have been produced as part of the Environmental Statement which feeds into the Bill.  These show where such as compound areas and road realignments are proposed.  In the forthcoming months these areas will be safeguarded to protect the areas required for the building and operation of the scheme from development. When this happens, those who have previously been outside of the safeguarded area will in certain cases be able to serve a blight notice on the Secretary of State for Transport to compel government to purchase their property.
 
For those who still fall outside of the safeguarded area there are discretionary HS2 schemes including the Need to Sell Scheme and the Voluntary Purchase Scheme and Cash Offer Scheme. Liz Farrall at our Stafford office says, "the Need to Sell Scheme which replaced the Exceptional Hardship Scheme is still difficult to satisfy but does give those further away from the scheme the ability to sell their property where they are unable to do so as a result of the proposed railway scheme.  The Voluntary Purchase Scheme or Cash Office Schemes are easier to satisfy but you need to be nearer the proposed scheme geographically and of course satisfy scheme criteria".
 
She comments that not everyone does wish to move or can move away from the scheme. Particularly where there are organisations or farming businesses.  Liz informs that the Stafford office are acting for a large number of clients where the aim is not to serve a blight notice but to maintain the businesses and lessen the impact of the scheme on both the business and people concerned.
 
Liz says early dialogue with HS2 Limited is essential. The message we have received is that HS2 Limited wish to continue communication without recourse to Select Committee hearings.  Of course there will still be the need to make representations before the HS2 Select Committee but wherever possible the first option is through dialogue to find a solution.
 
Now that the HS2 Phase 2a Hybrid Bill has been published there will be a period of consultation. The consultation period will end on 30 September 2017 and will be followed in March/April 2018 by the Select Committee process. It is envisaged that the Bill will gain Royal Assent by the end of 2019 with works starting on the ground in early 2020.  Meantime, Liz says that in all likelihood you may be approached for access for ground investigation surveys, together with accesses or compound areas for ground investigation survey purposes.  
 
We have the compensation and commercial skill base and knowledge to assist commercial property owners and tenants affected by the HS2 scheme.  These skills and knowledge combined with the resources only a National firm can offer means we can find the best solution for your needs.  If you are affected by the HS2 scheme or other infrastructure scheme then please call Liz Farrall on 01785 275392 / 07918 677575 or via email at liz.farrall@fishergerman.co.uk



Building the golden triangle

 
 
   
 

Demand for industrial and logistics property is booming.

Up and down the country, warehouses – some large enough to house 100 tennis courts – are springing up, many to ensure that online shopping orders are delivered as quickly as possible.

Internet shopping giant Amazon alone dispatches over 70 million packages across the UK each year – with the number set to rise.  Online shopping increased by a hefty 16% last year.

Another factor driving the need for industrial space is the continued growth in the UK’s still significant manufacturing sector, which in turn boosts the thousands of smaller companies who supply the manufacturers, all of who require space to work and operate from.

Recent take-up in the West Midlands has been dominated by businesses linked to the automotive sector with many forming part of the Jaguar Land Rover supply chain.

The demand for industrial and logistics space is concentrated broadly across the centre of the UK, significantly matching our own commercial office network.

The area bounded by the M1, M6 and M42 motorways is so popular among industrial and logistics companies it is known in the industry as the Golden Triangle.

Yet supply of floor space hasn’t kept pace with demand in recent years. That is partly because local authorities perceived the need for new housing as more urgent than assigning land for industrial or logistics use.

Furthermore, residential development has provided higher returns, so the development of new industrial buildings has been limited, particularly at the smaller end of the market.

Now the situation appears to be changing and there could be exciting opportunities for developers, landowners and investors in commercial property, particularly those involving land in or around the Golden Triangle.

The strong demand for employment land has pushed industrial land values up considerably and in some key areas of the country, prices have reached almost &600,000 per acre, rivalling or even exceeding residential land values.

This is potentially good news for those with land holdings, who have found their plots couldn’t be developed for housing.

Location is key with easy access to a motorway and other transport facilities a must.

Also, proximity to an urban area is often important to ensure the companies who locate there have an adequate labour supply, and good public transport so workers can easily get to and from work.

A super-sized 1,000,000 sq ft national distribution centre, such as one occupied by Amazon, is likely to need almost 50 acres, with an absolute minimum of 5 acres for one large building of 100,000 sq ft.

We have considerable experience in bringing forward strategic development land, and are currently advising landowners across the Midlands on sites that have industrial and logistics development potential.

There is an emerging story across the West Midlands, and along the M1 corridor in places like Doncaster and Leicester, where we are seeing developers competing for land and therefore paying strong prices.

And for landowners who want to create a long-term asset, the upsurge in demand for industrial space also presents real opportunities, as commercial developers have been reluctant to build smaller buildings (less than 50,000 sq ft), resulting in a real shortage of this type of stock.

One of the advantages of these smaller units, as well as small industrial estates, is that they can be more resilient to wider economic fluctuations.

The covenant strength of the occupiers may not necessarily be as strong, but there will always be a steady turnover and a flow of new businesses emerging.

Rob Champion – Partner
rob.champion@fishergerman.co.uk

 



Welcomed to the Yorkshire fold

 
 
 

We’ve only been in our new Doncaster office a couple of weeks, but already it feels like home.

The commercial team has achieved a 100% success rate on eight market appraisals we were asked to undertake prior to the move.

Of those properties, we have already sold Copley Road in Doncaster and the Amazone investment at Harworth.

We have also let subject to contract a bar restaurant opportunity in The Courtyard, Bawtry and a prime retail unit in Doncaster, while a second is under offer.

It means just two properties are available on Saint Sepulchre Gate and Sunnybar in Doncaster, though the team has already conducted viewings and expects this to go under offer quickly.

Many of the lettings or sales have impressively been for properties that were on the market unsuccessfully for some months with other agents – or joint agency instructions where we have secured the deal.

I am so proud of this genuine team effort, with associate Rob Haigh and newly chartered surveyor Ben Flint involved alongside me as partner and our experienced support staff of Laura Street and Emily Stringer.

We have given sound, solid advice and had the courage of our convictions to advise clients on the market in a certain way and ensure that clients are fully informed about the current market conditions and the tactics that they need to secure occupiers in what is a challenging market, particularly in the retail world.

We have proven even within a very short period that we can generate new interest in what can be stale properties and have worked extremely hard at trying to secure the right types of occupiers.

Indeed, some of the enquiries we have handled have taken a significant amount of time to turn initial tentative enquiries about the town into actual full-blown offers on properties.

It augurs well for our continual expansion into Yorkshire and the Humber region and to exploiting our strategic location in the booming M1/M18 corridor.

Certainly, the response we’ve had from clients and fellow professionals has been overwhelmingly positive and given us wholehearted endorsement of our plans.

And the first few weeks in Doncaster confirm our confidence that the move will be a catalyst for further growth of our business.

Kevin Benson – Partner
kevin.benson@fishergerman.co.uk



Maximise returns and minimise risks

 

Proactive property management can maximise values, returns and asset performance – and minimise risks of ownership.

The introduction of the Pension Freedom rules has ignited fresh interest in pension investment and for those with large funds, the wide investment options coupled with flexible withdrawal has put the spotlight back on SIPPs (Self Invested Personal Pension Plans) and SASS’s (Small Self-Administered Scheme) for ownership / occupation of property assets within them and using commercial property as part of their overall pension plans.

In such cases, you may have opted for a SIPP or SASS, so involving a Chartered Surveyor as an asset manager and / or an RICS registered valuers in your plans could be money very well spent.

We believe that effective property management requires hands-on and proactive asset management initiatives.

We manage portfolios for property investors, companies, charities, trusts, pension funds, SIPPs, SSASs and individuals across a range of market sectors including industrial estates, multi-let properties, offices, neighbourhood shopping centres, rural estates, mixed property portfolios and individual single-let properties.

Indeed, we manage over 800 properties with a capital value over &120 million and over 1,400 tenants.

We also implement asset management initiatives from lease re-gearing, rent review and lease renewal optimisation to business rates management, valuation, consultancy, letting strategies, development advice and business plan preparation.

Both SIPPs and SSASs are regulated in the same way and in the eyes of HMRC, they're both investment regulated pension schemes, which means that the basic rules surrounding borrowing, lending and investment are exactly the same for both.  But the legislation is applied slightly differently.

A SSAS is an occupational pension scheme, primarily intended for the directors and key employees of small businesses. It can have up to 11 members, who will all be scheme trustees. The assets are not owned by the individual members, but by the trustees as a whole, with members having a notional share of them.

This structure gives the trustees considerable control and flexibility of the investments, but also means they have to take on administration and regulatory responsibilities.

The range of allowable SIPP and SSAS investments is extremely wide and includes commercial property in the UK or overseas, including Real Estate Investment Trusts (REITs).

A major attraction of SIPPs and SSASs is that they can invest in commercial property which is let to the member’s company or partnership. You can even sell a property that you or your business owns to the pension scheme, although this might result in a tax charge on any capital gains.

Any sale transaction must use an arms’ length valuation, because there are tax penalties for ‘value shifting’.  Similarly, the business must always pay a full commercial rent, which the SIPP or SSAS will receive tax-free.

A SIPP or SSAS can borrow up to 50% of its net assets for property investment (or any other purpose) so, for example, a SIPP with net assets of &500,000 could borrow &250,000 and spend &750,000 on a commercial property.  Often SIPP and SSAS property purchase is financed by a combination of transfers from previous pension arrangements, new contributions and borrowing.

Please get in touch if any of the issues raised in this article are of interest, whether you hold SIPPs and SSASs, are considering them or you are an IFA, accountant or bank advising SMEs or high net worth individuals.

Jason Clines
jason.clines@fishergerman.co.uk



Spotlight on... Simon Geary

 
Introduce yourself… 
 
I’m Simon Geary, a Chartered Surveyor and Associate Partner, based in the Fisher German Knutsford office.

Before this, I was employed by a Hong Kong-based financial services company, but took a mid-life career change into surveying.

How long have you been with Fisher German?   

I joined Fisher German as a graduate surveyor in 2005, on my return from nine years in Borneo.  I trained for my APC while in Borneo, via distance learning with the College of Estate Management, attached to the University of Reading and qualified in 2007.  I became an Associate Partner in 2015.

What do you do, day to day? 

I’m very much a general practice Chartered Surveyor, as so many people are in the regions, so I’m into the sale, letting and acquisition of offices, retail and industrial properties.

I do a lot of commercial property and service charge management, including asset management advice and management of various residential leasehold properties.

I advise on Landlord and Tenant matters, such as lease renewals and rent reviews and am an RICS Registered Valuer, dealing primarily with the valuation of commercial properties, mixed use buildings, development sites / conversions and portfolios for banks, institutions and private individuals.

What do you enjoy most about your job? 

It sounds clichéd, but I’m a ‘people person’, so I love all the social aspects of meeting new people, advising clients and developing long-term trusted adviser relationships.

Inevitably with my varied background, I do like the variety of my work and not knowing exactly what I’ll be doing from day to day.

What are you most excited about working on in the next 12 months?

I am really looking forward to building on the growth of our Commercial sector across the country and expanding our client base in the North West.

What is on your iPod? 

I have a very eclectic taste! If you shuffle through the music downloads on my iPod, you could end up with anything from classical music to Snoop Dogg!

What about your life outside work?

I’ve been married to Rachel for 21 years. Originally from West Yorkshire, we now live in Sandbach in Cheshire with our four children, Fionn, Alia, Tom and Ronan and our lovable labrador, Mitzy.

I play badminton every week, golf whenever I get an invitation (hint, hint!) and enjoy swimming coaching too. 

And tell us something unexpected about you?

All four of our children were born on the giant, rugged Southeast Asian island of Borneo.  I had taken a business degree and joined Majestic Wine, but Rachel got offered a role teaching English in Brunei Darussalam, so off we went.

After all, there aren’t many places you can live, where you can drive to see orangutans one day. . . then dive to see turtles and tropical fish the next! We were lucky enough to travel extensively in the region; the most memorable trip being Vietnam in 2000 with two under twos!

We had strong links with the British Embassy there, so we socialised with High Commissioners, ambassadors and royalty from all over the world.  It was a wonderful nine years – but people say if you’re still there after 10 years, then you’re there for life!

Our dream is to take the children back to where they were born, when we can get the money together!

Simon Geary - Associate
simon.geary@fishergerman.co.uk




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