In a wide-ranging conversation about the trajectory of the UK commercial property investment market, Custodian Capital Managing Director, Richard Shepherd-Cross and Acuitus Chairman Richard Auterac discuss changing sentiment in the market, the return of rental growth, why offices may be undervalued and the need for institutions to get back into the market.
Soundbites from Richard Shepherd-Cross:
“People have always talked about real estate being a good hedge against inflation. Well, guess what? We’ve just had high inflation, and we’re delivering rental growth. So it is protecting the real value of the pound. I reckon that people buying in the market today are almost getting the rental growth for free”
“I’ve been working in commercial property for 30 years, and offices have been the most difficult asset class to invest in and to make money in. There are times when you can do really well, but time is the critical factor… The timing now is quite interesting, because values have fallen and fallen really significantly. So you can buy offices, let for three to five years in major city centre locations… and in some cases, you can buy those with double digit initial yields, and in those locations, those buildings can stomach the sort of rental growth that’s required to repay the refit costs”
“[a large segment of] the industrial sector is really interesting, because it has been totally under supplied. There has been no new development in the work-a-day industrial unit sector: from the 2,000 sq ft multi-let estate – filled with the sandwich makers, the dry cleaner, the dark kitchens etc – all the way up to the 50-100,000 sq ft foot industrial units that are very often the lifeblood of local economies. This is where people work. This is where we do still have a manufacturing industry in this country.”
“Institutional investment into UK real estate in Q1 of this year was at a 16-year low. They need to come back into the market, because they don’t make the market, but they’re an important component of demand.”
Listen to the full podcast (40 mins) here:
