The commercial property market is in a state of flux.
The auctions are awash with ex bank buildings being sold off; Nationwide and Santander to name a couple. They are keeping only the most strategic locations. The rest are being removed.
The high street too is changing. Independent retail shops are being gobbled up by large scale well funded mammoths. The online world is taking over real street facing businesses. A cursory glance at the rents and the rates, in practically any high street in London, will show that an independent retailer would need to run very hard to simply make ends meet.
This then leaves the gaps the internet cannot fill, like coffee shops, hair and nail salons, and takeaways. Though I may stand to be corrected in regards to the coffee; coffee is now on tap for delivery in New York, this may be coming to London soon. The trends always follow.
The trend is also changing in regards to takeaways; there is this mushroom like growth of what’s known as “dark kitchens”. Also known as “cloud kitchens” or “ghost kitchens”, dark kitchens can be either facilities where a single restaurant brand prepares meals, or buildings where a number of companies share space; these tend to be in warehouses on the outskirts of cities. There are two saving to be had, one is the outer location of the kitchen which lessons the rent and rate liability, and the co-working environment, which means they only pay a fraction of the expenses.
There is also the new Amazon smart shop, which claims to deliver fresh produce, and dispenses with queues and tills. This seems to be a pilot currently, no doubt they will look to ramp up the model.
Many property funds set up in Jersey or Guernsey, who purchased property for the stream of rental income are at a loss in regards to what to do when the property becomes vacant. They do not have the appetite to engage in the development of empty commercial spaces. Their game plan was a hands off investment approach.
Therefore, when the asset is no longer producing an income, and on the contrary is costing them in regards to rates and enhanced insurance etc, it needs to be offloaded.
I recall a premises which was in the South West of England, Stroud I recall. It consisted of 4,500 sq. ft. of empty commercial space. It was next door to a Specsavers and opposite a Boots; a good strong location. The property company purchased the property in 2015 for £450K, presumably it would have been cash flowing well. When it was no longer producing the site was placed in auction and achieved a sale price of £154K, about a third of its original value.
This clearly didn’t suit the property company but fitted into someone else's profile. Opportunities such as these, will increase in this coming year. There will be increased opportunity for the small investor to be had. Watch this space.
