Looking at Commercial Property19th Apr 2012
The last year has been a challenging time in the commercial property sector but Partners Carol Elliott and Fiona Knight from Coles Miller's commercial property team have still been involved in numerous deals. Carol Elliott says "Locally we have seen more activity at the smaller end of the market (for example, small industrial units)." However, she hints "There may be several big deals in the pipeline, particularly in the retail sector."
The key issue in the current economic climate is the availability of finance. In the case of freehold purchases, if a buyer has funding available and is not reliant on the banks, then opportunities are still available and deals are being completed relatively quickly. Fiona adds "We have seen some bidding up on more favourable freehold investment sites where there are good covenant tenants already in place." However, the market is constrained by a lack of funding. Where deals are progressing with bank funding, they tend to take longer because of conditions banks are placing on borrowers.
In the leasehold sector, there has been a continuation of the trend for shorter leases that began a few years ago with the change in Stamp Duty Land Tax, and for tenants break clause as tenants want greater flexibility.
In cases where tenants are well established and are regarded as a "Good Covenant tenant" (in particular a key tenant in a shopping centre), or where premises have been unoccupied for some time, tenants may be able to negotiate more favourable terms; monthly rent payments rather than quarterly; capping of service charges; and in some incidences in London rent is even being linked to turnover.
Other trends we are seeing:
- The changes to the Business Rates allowance for empty property coupled with difficulty in securing good tenants, has meant that some landlords are choosing to sell their investment.
- There are fewer speculative developments so fewer brand new units becoming available.
- When leases come to an end landlords are generally taking steps to pursue dilapidations claims and claims for rent arrears.
Most businesses are looking to reduce their overheads and if a town centre location is not essential, then some may look to move to out of town locations e.g. business parks, where rent is typically cheaper and where access/parking is easier. There may be some legal implications that may restrict this. Obviously a business may be tied into a lease with no break clause, or they may be facing a high dilapidations claim. Taking these factors into account it may not be the most cost effective option.
Fiona Knight advises businesses, "Seek legal advice at an early stage and you will save on costs in the long term. If you are preparing to sell or lease a commercial property get your paperwork in order. There are now requirements for an energy performance certificate for most commercial buildings. You will also need to check availability of an asbestos audit and any planning documentation. You should also check any previous leases are not still registered against your freehold title. If all is in order you have more chance of avoiding delays and concluding quickly."
"If you are a new tenant, come to us before you agree terms so we can review these for you and ensure that these are fair and reasonable so we do not have to negotiate further down the road which delays the process."
Carol concludes, "There seems to be signs of a recovery, confidence is returning and opportunities are certainly available for those companies or individuals in a good financial position."