Looking ahead to Q4 and beyond
The continued change in work and shopping habits along with the impact of the ending of the Chancellor’s Job Retention scheme are the biggest unknowns looking ahead. Unemployment looks set to rise, so the big question is how that will impact the level and rate of growth in the wider economy.
With the GDP heading into positive territory after two negative quarters we must surely be in for a V shaped recovery in line with the thoughts of the Governor of the Bank of England. The only question is how steep will the gradient be as there is a lot of ground to make up. We are unlikely to return to pre- Covid levels until the end of 2021 at best and are of course still vulnerable to the virus, and any disruptions and opportunities that Brexit will bring must not be forgotten.
Landlord’s ability to forfeit leases will return at the end of September, although with so much focus already on rental collection and concessions, it is unlikely to have as big an impact as it otherwise might on our market.
In the retail sector, turnover rents have been around for a long time, but have until recently been confined to actively managed shopping centres. They have now become a mainstream request/demand most recently from New Look’s latest CVA and Anne Summers. Few but the most entrepreneurial Private Investors will welcome this exposure to variable returns without a meaningful incentive and are as likely to take advantage of the new found flexibility of the Use Classes Order and faster planning process where the quality of the real estate will allow.
Casualties and opportunity will arise where rent payments have not been met. The retail market will find its bottom sooner than otherwise and this will create opportunities for investors along with pain for the banks and borrowers.
This has been the case on the High Street for some time, so it is another Covid acceleration but with B&M Retail now elevated to the FTSE 100, the Co Op planning 50 new stores and Tesco creating 16,000 new jobs the future is solid for the best retail real estate.
Projecting the trends that we have examined from the last six months suggests that our investors will continue to compete for the best assets, and search out opportunities that will benefit from the clear changes in working practices as commercial and residential tenants’ needs evolve.
Whilst the stock markets have recovered some of their gains over the last six months, or more in the tech sector, the main driver of our high yielding market is income as the buyers survey has reported. With real interest rates likely to remain negative for the foreseeable future we anticipate that this will continue. There is no shortage of appetite to invest their deep pool of capital, we hope the examples shown give some insight into this demand.
In these strange times, we believe that our many years of experience working with the Private Investor and a very busy last six months leave us well placed to offer clear and measured advice.
We wish to thank our clients and buyers for your support and forbearance during these rapidly changing times and wish you and our extended community well for the coming months.