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Holding, Not Following, Is The Name Of The Game For Property Investors

11 August 2009

The Northern Irish commercial property market continues to face significant challenges that have led to a notable downturn in transactional activity across all sectors. A reluctance primarily on the part of the banking sector to lend new money into property investment purchases at attractive rates has reduced investment activity. Clients are now concentrating instead on maximizing the value of their properties in preparation for when the market recovers. Holding property on a short-term basis was the main modus operandi for many investors during what is now largely regarded as the “boom” years. Attitudes, however, have shifted considerably over the past year, and the majority of property owners now acknowledge the fact that property should rightfully be viewed as a medium to long-term asset. Obviously, this has required an adjustment to clients’ mindsets, with property consultants having to guide investors accordingly.

Strategic property management (also known as asset management) is crucial in order to ensure that investments continue to perform and achieve maximum returns. Helping clients to develop effective asset management strategies features prominently within Osborne King’s business model and is something that we are keen to promote as the main tool to counter the decline in capital values and yields. Successful strategic property management requires a clear vision and action plan to maximise the assets performance within a clearly defined structure that is kept under regular review.

Elements of an effective asset management strategy include:

- Refurbishment and redevelopment opportunities
- Reviewing current tenant line up with a view to improving tenant mix
- Identifying opportunities to add additional income streams
- Re-gearing leases
- Maximizing rent reviews and lease renewals
- Exploring re-branding and marketing opportunities
- Offering more favourable lease or rental terms

We encourage clients to consider all of the options open to them and make recommendations based on what will maximize value for that particular property or portfolio. Obtaining the funding necessary to implement measures that will maximize the value of property can be equally challenging especially with the current credit shortage. Lenders have become increasingly rigorous in their demands for detailed information from property investors regarding funding arrangements, which is why experienced commercial property consultants are ideally placed to manage and expedite the reporting process. Furthermore, companies such as Osborne King are structured into specialist divisions allowing us to pull in expertise and skills from across the company thereby offering a multi-disciplinary approach to strategic property management.

Preparing for the inevitable upturn is something that the savvy investor will be taking into account irrespective of how difficult the market has been. Recently, there have been signs of market transactions coming to the fore albeit these have tended towards small lot sizes or properties with well-secured income and/or a strong tenant line-up. For instance, auction sales throughout mainland Britain have held up well post- credit crunch with auction houses such as Allsop’s reporting sales rates of up to 79% during the first half of this year. Meanwhile, property consultants, Jones Lang La Salle’s commercial property auction sale rate actually increased to 77% during the first quarter of 2009 compared with an overall sale rate of 64% achieved during the last quarter of 2008.

Demand has also increased for long secure income investments, such as food stores or Government let buildings, with significant competition now prevalent in the market for such opportunities. Property yields for these prime investments have sharpened over the last 3 – 4 months, with typical prime yields now reflecting c. 5.5%.

Undeniably, conditions remain challenging for commercial property. Last quarter saw a slight improvement in retail activity while occupier demand within the office sector also improved slightly. There is no doubt that economic recovery will be a slow and painful process, nevertheless, we believe that opportunities exist for investors to acquire good quality product, which will deliver strong returns as opposed to holding money on deposit earning little in the way of interest. Property will remain an integral and important element within the Northern Irish economy provided that lessons have been learned, and that investors and those who advise them continue to observe the fundamentals of property investment – that it is a solid, medium to long-term asset class and no longer a “get rich quick” proposition.

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