In recent times there have been a lot of commercial properties which have been disposed of both in the auctions and private treaty. The primary cause being that retailers are moving away from the costs, and wastage of a street presence to an online presence. Only very strategic and prominent sites are being retained.
Prepping no doubt for what’s coming; which is a complete eradication of cash and a digital currency. Soon, you’ll be paying for a cup of coffee with a chip in your hand!
Many of these include Barclays, HSBC and William Hill to name a few. The majority of these have gone in auction and achieved good prices, due in part to the permitted conversion rights available. Though with most of the prominent sites it would be worth retaining as commercial, primarily due to the hassle free FRI rent received, which when netted down may end up being higher than the residential rentals; this is also compounded by the sharp increase in build costs.
Also, many of these were owned by typically offshore based property companies, in the Isle of man, or Jersey for example. They purchased these investments based on both the blue chip tenant and the hassle free nature of the tenancy. When this is looking to come to an end, it no longer is fit for purpose, so they look to offload.
Not having a local presence or being in the development game, it will soon become a liability for them if they do not offload. An empty commercial property attracts business rates, enhanced insurance, not to mention the threat of illegal occupation. Therefore the asset passes hands, and what can become a liability for one investor can become a gold mine for another.
Similarly, we have sourced an opportunity which is off market, which is of a similar profile. A prominent commercial tenant has a lease on the ground floor, though is not actually in occupation, and is tied in till sometime next year. The upstairs has already been converted into flats, and is producing an income, although it seems well below market levels given the recent spikes in rents.
This is a good opportunity, one which is off the radar of the masses, therefore allowing for a discrete private sale.
The rents can potentially be increased by 25%, with the downstairs, either in our opinion, segregated into smaller commercial units so they are easier to rent or a partial residential conversion.
There are a variety of angles in regards to this deal which need to be explored further.