Colliers International expects healthy UK commercial property returns in 2022

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Retail property has been trailing, but the industrial sector will continue to help underpin returns as warehouses, prime offices and life science/pharma assets remain in demand.

The American owned international property agents, Colliers International, predict that all UK market sectors will show positive total returns growth in 2022, with the leading sector industrial property in the vanguard at 13.2%.

Overall, yields are well below the 16.5% total rental growth seen in the six-year high figure in 2021, but yields will stabilise and values will recover following a very difficult period.

Douglas McPhail, head of Colliers in Scotland, has said:

“We continue to see considerable investor demand for offices in Scotland, especially in Edinburgh where we have witnessed strong prices being paid.

“Looking across the commercial property spectrum, pricing remains firm with yield compression expected across most market sectors this year.

“We are also expecting investment volumes to break through the £2 billion mark in 2022 as appetite remains strong and there are still opportunities for strong returns.”

Investment in Scotland encouraging

The firm reports retail investment sales in Scotland hitting a three-year high of £530 million in 2021, helped by a strong final quarter which saw £210m transacted.

Tourism volumes are expected to return slowly as Covid recedes, with an expected return to near normal levels by the summer, which should help support high street shopping.

However, following price hikes due to rising inflation and the war sanctions these will have a real impact in real household incomes. The result will be declining consumer confidence which will inevitably continue to put pressure on retailers. Colliers is expecting yet more rent reductions across most UK retail centres over the next two years, with as return to growth in 2024.

Despite the significant rental declines through the pandemic period, Colliers predicts that the pricing correction is coming to an end. Mr McPhail says that, “All retail yields in Scotland hardened in 2021 and at the end of the year were at 6.98%, down by just 0.84% since the end of 2020.”

Retail warehouses are expected to perform particularly well, with Scottish office buildings holding their own at just 5% below the 10 year average of £680m. Investor demand for prime assets remains strong which will result in steady asset price rises expected this year.

Glasgow, Edinburgh and Aberdeen have all seen record take-up levels of leases, with a potential resurgence in the oil business making Aberdeen one of the front runners for North Sea oil companies. Shell recently took 71,000 sq ft at the Silver Fin Building earlier in 2021.

Colliers figures show that around £340m accounts for transactions completed in the industrial sector in 2021. This is a big increase from the £220m transactions in 2020, and almost 50% above the 10-year average of £230m.

Elliot Cassels, in the National Capital Markets team at Colliers Scotland, had said:

“The rise in e-commerce and the effects of COVID-19 has accelerated the structural change in demand for warehousing. The increased tenant demand and strong rental growth has resulted in industrial and distribution remaining the best performing sector in the Scottish property market and the rest of the UK attracting strong investor demand from both domestic and overseas capital. However, the Scottish market has limited prime stock and subsequently the market has been starved of product.”

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What to do with equity release funds?

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Hi guys, I’m in a position to release a total of £680,000 equity on two properties (my home and a buy to let). I’m not sure whether to use this to expand the property portfolio, or use this to clear the mortgage on my main residential home and invest the remainder?

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Government is wrong to exclude Buy to Let Landlords

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A cross-party group of MPs has opposed the Government’s plans to make many buy-to-let landlords pay for the replacement of dangerous cladding.

Ministers have proposed that landlords renting out more than one leasehold property will be excluded from its commitment that no leaseholder should have to pay for the removal of unsafe cladding following the Grenfell tragedy.

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Mandatory to register non-taxable trusts with HMRC’s Trust Registration Service?

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If you hold a property as a nominee on behalf of another person or company, it may be mandatory to register this trust with HMRC’s Trust Registration Service (TRS) by 1 Sept 2022. Previously, non-taxable ‘bare trusts’ did not need to be registered.

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NEW: London prepares legion of housing officers to tackle rogue landlords

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A legion of housing enforcement officers is being trained up to bolster London’s fight against rogue landlords, with plans to roll out the scheme across the UK.

The first cohort is studying at Middlesex University for a new level five, 12-month housing enforcement qualification – Private Sector Housing Interventions – which takes people with little or no housing experience in environmental health or PRS housing and equips them to carry out the duties of a PRS enforcement officer.

The course has been set up jointly by the Chartered Institute of Environmental Health (CIEH) and Mayor of London Sadiq Khan to address the lack of qualified and experienced staff following years of cuts in local authorities.

Landlords regularly voice their frustration when this translates into councils struggling to police licensing schemes.

Khan is funding the programme, which is only open to London councils, but if successful, could be rolled out nationally.

Mediate disputes

He wants to see tougher penalties for rogue operators and says: “This new qualification will give councils across London the workforce and expertise to mediate disputes, enforce standards and crackdown= on the rogues who give the many honest operators in the sector a bad name.”

Dr Alan Page (pictured), associate professor of environmental and public health at Middlesex University, adds: “These students will add really able practitioners to London enforcement teams and thereby increase capacity to improve the sector and the life circumstances of tenants.”

CIEH has been trying to generate more interest in the environmental health profession through social media campaigns and has also called on Chancellor Rishi Sunak to create a national apprenticeships fund for local authorities, to help them fund the cost of training more environmental health practitioners.

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Landlords fight criticism and highlight huge costs of evicting lawless tenants

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A large regional landlord association has launched a campaign to highlight the expensive problems many buy-to-let investors face when tenants go rogue.

The Eastern Landlord Association says it wants to tell the other side of the story after the region’s newspaper revealed that some 10,000 complaints have been made by private tenants to Suffolk council about their property or landlord over the past five years.

Chairman John Pitts has hit back telling The East Anglian Times that instead of being blamed for poor standards, private landlords should be incentivised to provide housing stock, given the shortage of affordable council homes.

Commenting on recent research by trade body Propertymark which found that 20% of landlords are considering selling all or part of their portfolios during 2022, Pitts said if such predictions were true then it would ‘catastrophic’ for tenants.

Rogue tenants

The association has also highlighted several landlords in the region who between them have lost tens of thousands of pounds in repairs and court costs after rogue tenants damaged their properties or stopped paying the rent.

This includes Terry Baccus, a landlord with three properties in the region who, after tenants trashed a terraced house of his in Lowestoft, says existing eviction rules do not give small landlords like him enough protection from rogue renters.

He found that the tenants, who deliberately flooded the kitchen of the property once it became clear they would be evicted, had been paid their Universal Credit rent direct via the DWP but had not passed it on for nearly two years, despite being given a rent reduction by Baccus to help them manage their bills. The property is now on the market after Baccus vowed that ‘enough is enough’.

Picture credit: Terry Baccus.

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Local Authorities using Credit Checking to Trap You and Identify Your Tenants

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It has come across my desk from more than one local authority and in multiple cases that the Council is checking information with Consumer Credit Reference Companies as part of their enforcement, and they are not making a secret of it!

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Sadiq Khan calls for a 2 year Private Rents freeze

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The Mayor of London, Sadiq Khan, is calling on Government to give him the powers to freeze private rents in the capital for two years to save rent for thousands of Londoners, but no help for Landlords, struggling to cope with the rocketing cost of living.

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LATEST: Has the John Lewis rental property plan stalled?

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John Lewis has insisted it is still focused on becoming a major residential landlord, despite first announcing the idea nearly 18 months ago.

Its Partnership Plan aims to transform the business and promises that in this financial year it will invest in John Lewis shops, its website and distribution as well as “continuing to develop and progress our property rental proposition”.

John Lewis first revealed plans to build 10,000 rental homes over the next decade back in October 2020 but senior leadership roles for the project were still being recruited for late last year, according to one leading property jobs agency.

The retailer identified space in its car parks, above Waitrose supermarkets and near distribution centres for about 7,000 rental homes ranging from studio flats to four-bedroom houses where tenants would have the option of renting accommodation that is fully furnished with the chain’s own household furnishings, or providing their own.

Further detail

But the lack of any further detail since then seems to indicate that the plan is proving to be more complicated than first thought.

The beleaguered retailer suffered substantial pre-tax losses of £26m in the last financial year (compared to its £491m loss the previous year) despite profits rebounding by 38% off the back of its highest ever sales of £4.93bn, which increased 8% like-for-like.

Staff bonuses have been reinstated as a result, but John Lewis has admitted its profit margins were hit by restructuring and exiting property leases as it sold off eight stores and a delivery hub, as the business focuses on online shopping.

If they ever get off the ground, the initial residential developments are planned for South East England, but the partnership believes there are opportunities across the country.

Read its results in full.

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Khan claims rent controls to cut landlord income by £3,000 during first years of scheme

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The Mayor of London Sadiq Khan has claimed that rent controls would save tenants £3,000 during the first two years of the scheme, if his plans are given the green light.

But the Labour mayor’s calculations are wishful thinking – so far Conservative central government has ignored his previous calls to be given rent control powers.

Nevertheless, the latest figures from Khan’s office reveal the likely reduction in rental income that landlords could face should a change in political power within Westminster take place, particularly as his latest call as the backing of campaigning group Generation Rent.

The organisations, along with Shelter, holds considerable sway in the corridors of Whitehall where renters’ voting power increasingly checkmates landlords’ concerns.

Khan’s new figures are based on rent inflation predictions by estate agency Savills, which reveals that that freezing private rents for two years would save Londoners on average a total of £2,988 across both years including £881 in the first year and £2,107 in the second.

His calls for rent controls are backed up by the cost of living crisis facing many tenants as inflation and in particular energy costs spiral upwards.

Devastating combination

“Private renters make up nearly a third of everyone living in the capital and they are set to be hit by a devastating combination of price and bill rises. Too often the needs of private renters are ignored by both landlords and the Government,” he says.

“Rising fuel and energy costs – which will hit renters in energy inefficient homes the hardest – are already causing anxiety and stress, with a big rise in the energy price cap due next month.

“That’s why today I’m calling on ministers to give me the powers to stop rents rising in the capital and help me to give people a chance to get back on their feet after the pandemic.”

NRLA reaction

Ben Beadle (pictured), of the National Residential Landlords Association, says: “A rent freeze would be disastrous for the private rented sector. At a time when costs are rising sharply and will continue to do so with extra spending needed for energy efficiency upgrades and higher mortgage rates, all it would do is drive more landlords out of the market.”

Read more about rent controls.

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