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Inflation, Borrowing and the Commercial Property Market

How will inflation rates affect commercial property investment?The recent national inflation data showing that prices have dipped if anything has influenced the Bank of England to keep Base Rate on hold and pundits reckon they will probably stay that way until mid-2015. By that time we will have been through a General Election and it is anyone’s guess how that will turn out with politics being in such a state of flux at present.

It has some relevance to borrowing rates for commercial property acquisitions, in that the chances are such rates will slowly come down over the next year or two. However in many cases these are currently set as many times base rate, unlike the heady days of 2005-7 when some clients of ours were on as low as 1.5% above base rate. Base rate was of course much higher then, varying between about 4.5 and 5%.

Meanwhile some clients of ours have recent experience of dealing with mainstream lending banks in arranging property loans. In one case in point, the Bank in question approached our Client not vice-versa. Even so our Client expresses disappointment to us about what they perceive as harsh valuations placed on their commercial property assets by such Bank’s Panel Surveyors, usually Registered Valuers from large regional or national firms. They complain about inaccuracies in information provided and an apparent lack of convincing or logical argument in arriving at their valuation figures.

We listened to one client last week who was commenting that the valuation figures provided for his multi-million pound property company represented only a fraction of the cost of building the units concerned.

In other words the commercial property valuations, if correct, were showing that the properties concerned had suffered a steep depreciation in value, which if it continued would render their shelf life less than 25 years say. Thankfully the Client did not have any historic borrowings but if they had done their property company would have been ‘under water.’

To be fair, surveyors can usually only value on the basis of comparative evidence of transactions that have already occurred and so there will always be an element of ‘catch up’ in a changing market. As I write, there is still distressed stock coming onto the market albeit at a much lower volume then was the case say two years ago.

But the impact of changing occupational trends, with some buildings suffering long vacancies; the burden of empty business rates; and the pressure to improve heating efficiency; have all caused some commercial properties to nose-dive in value over the past 10 years.

Industrial Unit in BradfordIt is not all doom and gloom though. Business rate assessments for commercial property can sometimes be mitigated and Andrew Idle Associates have enjoyed considerable success in this; empty floors can be put to other uses than those originally intended with some adaption or upgrade of fire safety; and prospects for re-letting empty space can be improved by agents being pro-active; advertising on appropriate media and carefully assessing what a realistic rental would be.  In other words, keeping our fingers on the pulse.

Andrew Idle Associates recently completed the letting of a modern 10,000 sq ft industrial unit in Dudley Hill, Bradford within days of it coming onto the market by doing just that. The Landlord was delighted to secure an early re-let whilst the tenant was grateful to be able to achieve a quick turn-around to start preparing their new factory operation.

And confidence in commercial property investment in West Yorkshire has shown a marked improvement over the past 12 months in general.

Andrew Idle

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Funding for commercial property acquisitions

Funding for commercial property acquisitions in Yorkshire remains challenging but the situation is improving. We have, for example, recently sold a mixed investment (retail and residential) property in Bradford where the buyer obtained funding from Lloyds Banking Group. Other mainstream banks are also showing willingness to lend on commercial property if the criteria are right.

Owner-occupier sales are proving to be one of the easiest deals to fund, and this can include those run as an income – producing businesses, such as serviced office complexes run as business centres, where the Landlord provides a wider ranging offer to occupiers than normal. We recently agreed the sale of an industrial property in Bradford where the buyer will be an owner-occupier, with funding from Lloyds Banking Group (subject to valuation).

For those investors who are choosing to buy at auction there is the option of using bridging finance which then converts into a longer term loan from a mainstream bank, provided the property offers an early part disposal angle to exploit.

Bridging loans can be utilised for a wide variety of property including residential flats, houses, industrial, retail etc. This type of loan can typically be arranged in a matter of a few days, which is essential in an auction situation where bidders are under strict timescales. The bridging firm will expect the borrower to have a large enough deposit – typically 35-50%.

The borrowing rate is high, typically 1.25% per month along with arrangement fees of up to 2% and first / second charges being applied on the title, but this type of arrangement could still be worthwhile if the property can be worked to make a healthy short-term gain.

If you’re a buyer and have not yet secured funding for commercial property, Andrew Idle Associates we would be happy to put you in touch with independent financiers or consultants who may be able to help.

Andrew Idle

Commercial Rent Arrears Recovery: What You Need To Know

Commercial Rent Arrears Recovery (CRAR), which came into effect in April, has drastically altered the way that landlords of commercial premises are permitted to deal with rent arrears.

The new regulations have abolished the ancient right of distress, whereby landlords were able to recover rent arrears by seizing tenant’s assets without prior warning and a court order. In principle, CRAR is a positive step to redressing the balance between tenants and landlords by ensuring that tenants are treated fairly across the board.

It’s essential that commercial property landlords now follow the strict CRAR process when seizing tenant’s goods in the recovery of rent arrears, so here is what you need to know:

• Only available to landlords of commercial premises
• Not applicable to premises that are also occupied as a dwelling e.g. a shop with a flat above with one lease agreement.
• Lease must be in writing
• Can only be used to recover rent, VAT and interest
• Does not apply to service charges, rates or insurance
• Tenant must be given seven clear days written notice
• Tenant must be at least seven days in rent arrears
• Clear guidelines on goods that cannot be seized
• Seized goods must be valued within seven days and then sold or disposed of

CRAR is certainly good news for tenants and some claim it will have a positive impact on tenant-landlord relations, ensuring that tenants are treated fairly but that they also recognise the landlord’s law-given right to recoup arrears.

It may prove more costly and time consuming for landlord’s to recover rent arrears via CRAR but there are other options available to them.

These include serving a statutory demand on the tenant (after which the landlord can commence insolvency proceedings if the debt remains unpaid), bringing court proceedings to recover the debt or taking steps to forfeit the lease. The use of charging orders by creditors has increased significantly in recent years though they can be challenged through legal process. There may also be some other security such as a guarantor or a rent deposit, although a well-advised landlord will usually have looked to this before resorting to distress / CRAR.

All of these will normally be more expensive than the remedy of distress would have been. It was a blunt tool with minimal paperwork involved. In our experience Landlords only appointed the Certified Bailiff (as they used to be known) after they had exhausted other options and it was very much a last resort, usually due to the tenant avoiding the arrears issue and hoping it would just go away.

The change in the law makes it even more vital that Landlords maintain regular communication and dialogue with their tenants and so they are more likely to become aware of any rent payment problems at an earlier stage and can work constructively towards resolving them without the relationship breaking down. This is where the services of a good managing agent are invaluable.

Andrew Idle Associates is on hand to offer expert advice to client’s who let commercial properties within the West Yorkshire region. If you have any questions about CRAR and how it might affect your lease agreements, feel free to get in touch on 01274 743884.

Andrew Idle

The impact of business rates in 2014

Over the past few months there has been a gathering storm of protest at the way businesses and property investors are taxed through business rates.

We work on behalf of our clients to negotiate business rates to ensure that they are getting a fair deal on their commercial premises.  However, whilst savings can be made by through business rates negotiations, which generally focus on ensuring that assessments are accurate, retailing lobby groups, manufacturers and investors continue to criticise business rate tax and campaign for change.

For many commercial tenants, particularly in the North of England, current business rates are unaffordable and place an enormous strain on the finances of small companies.  This is due to the fact that present rateable values for the retail sector are based on rents achieved at the height of the market, when rents were at an unsustainable level.  For some businesses, these rates are now almost as much as the rent on their premises!

For those in manufacturing sector further issues may arise following investment in new plant or machinery, as a rating by the Valuation Office Agency could wipe out some or all of any capital allowances given.

Many commercial landlords are also feeling the pressure, as they must pay full empty rates on retail and office space following the three-month void allowance.  Landlords can access mitigation schemes through specialist consultants but these often come with a considerable fee.  

Further, charitable organisations that take up commercial property space often expect it to be rent-free and for the Landlord to share the rates saving with them, leaving landlords not a great deal better off.  Empty rates liability has impacted on the value of some buildings, to such an extent that some office buildings have been sold at historically low prices for conversion to residential use. The Government in turn assisted in this by relaxing planning law to make such a change easier.

On another positive note, the Chancellor’s announcement in the Autumn Statement 2013 confirmed that retail premises that had been vacant for more than 12 months would be eligible for 18 months of business rates payable at half of the normal rate when the premises are re-let.

This is good news, particularly for cities such as Bradford, which awaits the emergence of major shopping centre investment in the near future.  In the meantime, Bradford, which has several long-standing vacant shop units, could potentially benefit from this rates relief.

Bradford is offering both existing and new city centre businesses within the Growth Zone business rates reductions where they are taking on new staff, and the Council plan to extend the Scheme through to the end of 2015 when the Westfield Shopping Centre us due to open for trading.

The Chancellor has also promised a complete overhaul of the business rates system in 2017.

Our wish list would include higher allowances for premises which have access difficulties; production by the Valuation Office of floor plans simplified if necessary making it clear what is included in the assessment; and exclusion of tenants fixtures and fittings from the assessment.  

For more information about business rates on properties in West Yorkshire, and support with rates appeals and negotiations, contact us to discuss.

Andrew Idle

New Office letting in Bradford

Andrew Idle Associates are delighted to announce the letting of a two storey office building in Bradford City Centre amounting to nearly 4,000 sq ft. We introduced the PLC tenant to the Landlord and were involved at every stage of the process.
The Premises suit the Tenant well and need little internal alteration; while for the Landlord they have an excellent quality occupier who will add value to their Property. A ‘win-win’ situation for all concerned.
Achieving lettings of this calibre in the current market is not easy and requires careful marketing presence and attention to swift communication from the commercial agent throughout. It would be nice to think that more quality occupiers start to move into the BD1 area. if you are a Bradford Landlord that needs pro-active help from a commercial agent then why not try out Andrew Idle Associates?

Andrew Idle

Bank of England and Bradford Commercial Property Market

I was one of a small group of Bradford business people in touch with what is happening on the ground in Bradford that attended an audience in Bradford with Sam Simpson, Deputy Agent for the Bank of England.

The main point for discussion was the apparent lack of mainstream bank support for SMEs in the Bradford area, and also the difficulty of securing funding for commercial property purchases.

Although owner-occupiers may have more success in gaining borrowing facilities at a reasonable cost, for the majority of Bradford property entrepreneurs it is the case that cash is very much king right now.

The Bank of England emphasise that they cannot determine individual banks lending criteria, though they do have more regulatory powers as from April 2013.

New banks are now emerging and starting to offer property loan facilities in the Yorkshire Region and this is a step in the right direction.

Whilst no-one in their right mind would want to see a return to the collapse of major banks in the UK, it would be good to see a better sense of balance in commercial property lending.

Thanks go to Nasreen of Platinum Partnership Solicitors for arranging this important Event.

Andrew Idle

Bradford Business Conference

It was good to visit the Bradford Business Conference ( B B C) on 12th September 2013. Whilst browsing the various stalls in the exhibition room at the Hotel I was spotted by David Robertson-Brown and Jacqueline Ramdeen who gave me a useful update on the Growth Zone. The Growth Zone promoters are hoping to be able to announce shortly, additional financial assistance to firms who want to expand into commercial premises within the geographical area of the Zone.
We have a Client who stands to benefit from this subject to us identifying suitable premises for their business. Andrew Idle Associates provides property acquisition services to a range of Clients, in addition to our commercial sales, lettings, valuations and business rates appeals.

Andrew Idle