High street investment
There was an expectation as we headed into the first quarter of 2014 that the pace and tempo that had returned to the high street investment market would continue. The reality is that this has not been the case.
Investors and agents alike saw frenetic trading activity after the ‘switch had been flicked’ back in August. The sudden break in transactional constipation left everyone exhausted by the Christmas break but it would be wrong to think that deal fatigue could be blamed for the static market that we have seen over the first months of the year.
January is traditionally a rather ‘phoney’ trading month. There is huge enthusiasm to do business, and a lot of talk, but generally institutional investors are, in the majority, using the time to assess where their year end valuations leave them and finalising their strategy for the year going forward. The quietening down of the market is in our view more down to the view that demand remains strong and values may improve further as we head towards the end of the year. There was huge relief in mid-2013 as the markets ‘got going’ again and transactional activity for fair priced assets once again presented itself.
Demand at both fund and property company / private levels has increased and the number of enquiries has risen. Funds are still enjoying good capital inflows and the retails funds in particular will be bolstered further as investors seeing last year’s performance look towards property for their financial year end ISA allocation.
Demand is also improving at the property company level where the market is seeing signs of improved access to debt which not only means that buying with leverage is becoming a reality again but also brings with it the prospects of refinancing becoming a real possibility. This heightened demand coupled with the expectation that values can only improve has caused a tightening in the market. The conclusion to this is that values should continue to rise especially for prime well secured freehold property and as we witnessed at the end of last year, premium values can still be attributable to those shops with unexpired leases in excess of 10 years.
Some investors are looking to capitalise on the lack of supply and for the first time for a while we have a market that may find buyers for stock that until recently was not finding favour. Enthusiasm for risk is not there wholesale yet but there are parties who are beginning to put a toe in the water and as such may well be rewarded. The question exists, however, as to whether the investment market may have raced slightly ahead of itself.
Whilst the interest rate scenario is very different to the investment market rally in 1994, the occupational market certainly is not. It is arguably still in a generally a worse state especially in second and third tier towns. Until the occupational markets have properly found their new world footing the recovery is not complete and in our view may not be sustained.
Whilst the UK consumer's financial position is improving, the reality is that domestic debt still remains too high and if interest rates start to peg up post next years election then all bets could be off for a smooth recovery in the occupational markets and for short term rental growth on the high street.
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