Award Winning
commercial property solutions
For some time now, those in Government (all parties) have voiced concern of the danger of a ‘double dip’.
Well I’ve got news for them. The commercial property market hasn’t climbed out of the first dip yet! On this basis, if we are headed for a second dunking then let’s hope it’s soon. That way, the commercial property sector only has to haul itself out once!
A memo was issued on the 2nd June by the Malcolm Sutherland (the Head of Government Estate Rationalisation at the Office of Government Commerce) instructing all consultants and legal advisors to the Government that ‘HM Treasury and the Cabinet Office Ministers have announced an immediate freeze on all new leases or lease extensions for the government estate’ across the country . Furthermore, the memo went on to instruct that ‘plans should be made to exercise all lease breaks and expiries’. No doubt this caused some sweaty palms for landlords holding property in Whitehall and Victoria!
So it seems that almost immediately upon coming to power, the coalition is already treating the business of government more like a business – good news indeed. We will hopefully see this new cost-saving strategy extending into the myriad of quangos and other seemingly unaccountable government departments set up over the last 8 years or so.
It will be interesting to see how the Government tackle the banking system. Although I suspect that this will be a harder task than getting their own house in order.
In the recent past I’ve banged on enough about the lack of lending for commercial property (and those working in that sector). The simple fact is that freehold transactions are now very rare with the vast majority of deals that prop-search are concluding being structured around letting.
In the recession of the early 90’s, commercial agents were overrun with instructions from banks to re-value mortgaged properties. This recession has revealed a stark contrast, where we’ve hardly seen any banks revaluing.
Why? – Because those in the know suggest the loan to value debt makes the sub-prime residential mortgage inherited from the United States look like pocket money.
Within the UK, we’re not just talking about hundreds of millions but billions of pounds lent on speculative development – a lot of it at 100% of cost. This means that the UK banking system owns an awful lot of property that in many cases is worth half the value of the loan! No wonder they are frightened of formally asking for a re-valuation! And little wonder that they aren’t keen on lending anymore!
So where does this leave us?................ Yep – you’re probably right!
Nevertheless, business and life goes on and as previously reported many businesses that we meet are still trading well. We (prop-search.com) have concluded many deals over the last 6 months and an increased number since the election. Many of these are not long term leases, nor a permanent solution for the landlords - but they are sufficient to buy time and time (we’re told) is a great healer.
The memo from Mr Sutherland (para 3 earlier) reflects exactly the same strategy as employed by businesses in general and the commercial property market over the last 18 months or so. The reality is that as far as the commercial property market is concerned, there is little point in holding out and waiting for the market to improve in the medium term. If you are able to rent or lease property now, then do it.
The Government can’t help out at the moment (they need the income from stamp duty and void rates) and neither can the banks. Businesses need to adapt and hopefully the thaw will begin sometime soon.