With so much uncertainty caused by the Covid-19 pandemic, our private investor clients continue to focus heavily on properties with secure income. Convenience stores, pharmacies, shops with residential uppers and industrial units are all in demand. As lockdown measures have eased, the prices of properties have hardened. Coupled with interest rates at an all-time low, we continue to see yields being compressed.
We purchased a pharmacy with two flats above on Mill Hill Broadway, North London, NW7, in November 2020 for £1.23m. A similar shop, a few doors down, with one flat was sold in the Acuitus June 2021 auction for £1.13m.
We have seen a similar trend with convenience stores. There is excess cash waiting to be invested from private buyers chasing returns in the commercial property sector. The availability of competitive finance adds to the pressure on yields.We expect to see this trend grow further once the extended residential stamp duty holiday comes to an end. Traditional residential investors are now looking for mixed-use properties: shops with residential upper parts to improve their income. This has further fuelled the demand for the sub-£1m lots in the auction catalogues.
Retail value
In the Allsop June auction, notable lots included 13 Boots pharmacy sale and leasebacks sold mostly with new five year leases to the US-owned company. These provide a steady stream of income at a decent yield. There was also a portfolio of shops let to Santander. The branch located in Pinner, north-west London, managed to get to £906,000, a yield of just 3.6% on four years term certain of income.
We are seeing demand for out-of-town retail as opposed to traditional high-street shops. Going forward, we see opportunities in well-located retail parades and retail parks which are easily accessible and offer onsite parking. Pricing eased as a result of the institutional funds exiting this sector. The auctions have been offering some of these lots over the past year. They have been popular as investors are looking for diverse income rather than the risk of a single tenant.
Rental arrears
Since the start of the Covid-19 pandemic, Deekay has managed to collect over 85% of the rental arrears (by value) across the £750m of assets under management. We have worked tirelessly with tenants by agreeing rent deferrals and rent-free concessions in lieu of regearing leases. We waived a forthcoming rent review and provided a rent-free period in exchange for a reversionary lease for a national pizza takeaway operator. It is important to highlight that both parties need to fully engage during this difficult period and Deekay’s engagement in this process is shown in the rent collection statistics.
It is unfortunate that a certain well-capitalised and cash-rich high-street discount sports retailer, despite now being able to trade, refuses to pay any rent or engage in any dialogue to work together. Occupiers were supported by the government through rates concessions, grants and furlough payments. These were provided to help businesses meet their financial obligations, including rent payments. Landlords were ignored by the government for any help during the pandemic. As the eviction moratorium has been pushed to 2022, it remains to be seen if the serial non-payers will pay any rent or hide behind the blanket exemption offered by the government. At the start of the pandemic, we were worried that the independent tenants would default and expected large multiple retailers to meet their rental obligation. However, it has turned out to be quite the opposite.
Support for landlords
The government’s plan to extend the commercial property eviction moratorium to 25 March 2022 is ludicrous. The government has set up an arbitration process to deal with unpaid rents. This will be a costly time consuming exercise for both landlords and tenants. Landlords also have financial obligations and costs to meet and have nowhere to turn to for help. Whilst the government concern is to protect the jobs of the occupiers, I am not sure what the consequences will be if landlords go under if they do not receive rents until 2022.
Neel Shah is managing director of Deekay Group
