Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores the current landscape of London property investment and how it may soon shift.

During the last five years, the prime central London (PCL) property market has witnessed significant shifts and spikes in demand and supply. However, nothing could have prepared the market for the immense impact of the COVID-19 pandemic and the consequential UK-wide lockdowns.

The economic ramifications of the novel coronavirus pandemic will undoubtedly be felt across the global economy for some time. But, when it comes to the UK prime property market, there is more than one reason to be optimistic about the future.

Alongside numerous other measures introduced to encourage consumer spending and investment activity, the UK government announced a series of measures to support transactional activity across the real estate market.

And, in this, the government has been successful. Recently, the property market witnessed its fastest rate of house price growth in over four years. This is very much a result of the Stamp Duty Land Tax (SDLT) holiday. No wonder, given that the tax relief policy allows anyone – from first time buyers to seasoned buy-to-let (BTL) investors – to save up to £15,000 on British property purchases.

Based on experience helping clients navigate the PCL property market, I’ve noticed multiple trends that potential PCL investors should keep abreast of over the coming months. As England navigates its second nationwide lockdown, the precise nature of the capital’s property market remains uncertain. Nonetheless there are certainly things for those interested in prime property in the capital to be on the lookout for.

Recently, the property market witnessed its fastest rate of house price growth in over four years.

London: the jewel of UK property?

With remote working set to remain a reality for many of London’s professionals, some property commentators feared a collapse of the PCL market as newly homebound workers fled to the countryside. This has demonstrably not occurred.

Although some shift in buyer demand away from central London and towards quieter, more suburban areas was recorded by Rightmove, this trend’s impact on the PCL market is seemingly minimal.

Despite the so-called working-from-home revolution, the market for properties in central London worth in excess of £5 million has been one of the most active sectors of the UK’s real estate market throughout 2020. The number of transactions involving such properties was 13% higher during Q1 2020 than during the same period in 2019; and Q3 saw more PCL housing sold than during any other quarter since 2015.

Even within the £5 million + London property market, over half of all such sales are located in just five postcodes, according to Savills.

The driving force behind this spike in activity is multi-faceted. Yes, the previously mentioned government initiatives to support the UK property market are partially responsible. But, given that the SDLT holiday only protects the first £500,000 of a purchased property’s cost from the tax, there must be other underlying forces at play.

One such force is the SDLT foreign buyer surcharge. Due to be implemented on April 1, 2021, this added 2% tax for those purchasing British property from abroad represents a massive intervention into the PCL market. In H2 2019, such buyers represented 55% of all PCL transactions.

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A motivating factor for many foreign buyers at present, then, will be to avoid this added cost. This trend will likely continue until the currently scheduled end of the SDLT holiday on March 31, 2021, with international investors keen to complete on transactions before this key date. Reportedly, 22% of such buyers are so keen that they’ve purchased property without a single viewing, according to London Central Portfolio.

With such an impressive year for transactions numbers then, I believe that the PCL property market’s prospects should only improve as COVID-19 is brought under control.  At the moment, that could be sooner rather than later based on recent vaccine announcements.

As it currently stands, the PCL property market looks set to remain strong for the foreseeable future. Buyer demand from domestic and non-UK residents is increasing the number of transactions taking place, demonstrating the underlining attractiveness of prime property as an investment venture.

The average UK home sold for more than £250,000 last month, marking the first time the average has crested a quarter of a million pounds.

New data was released in Halifax’s latest House Price Index, a leading authority that gauges the state of the UK property market, showing that prices rose 7.5% higher in October than their average during the same period in 2019 – reaching as high as £250,547. The increase also marks the highest rate of annual growth since the middle of 2016.

The increase follows a surge in house prices in September, with a combination of the stamp duty holiday and a pent up demand from the initial lockdown period pushing the price of the average UK home up to £249,879.

Halifax managing director Russell Galley credited the continuing effects of the pandemic for creating “clear headwinds” for the UK property market. He added that stamp duty cuts and rising interest in moving “supercharged” demand and pushed prices higher.

“Overall we saw a broad continuation of recent trends with the market still predominantly being driven by home-mover demand for larger houses,” Galley said, adding: "The country's struggle with COVID-19 is far from over.”

While Halifax’s new index showed year-on-year growth to be strong, the rate of monthly price gains appeared to be slowing sharply. Prices rose by 0.3% between September and October, a notable decrease from the 1.5% rise seen a month earlier and 1.7% in the previous two months.

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Halifax warned that economic fallout from the COVID-19 pandemic, likely to arrive in early 2021, would put “downward pressure” on home prices.

Jamie Johnson, CEO of FJP Investment, looks into the resurgence of the UK property market and how the government could sustain it.

After so many months in lockdown, attracting the investment needed to help bring back market activity to pre-pandemic levels is by no means an easy task. However, there have been some signs that government initiatives have, thus far, been successful in coaxing investors back to the market; most notably in the real estate sector.

Following the introduction of the stamp duty land tax (SDLT) holiday, property listing site Rightmove recorded a massive 75% increase in the number of buyer enquiries recorded on their site. And according to Nationwide’s House Price Index for August, house prices experienced their biggest monthly increase in over 16 years.

While undoubtedly a positive sign for the sector, the big question is whether such momentum can be maintained. Property investors need to feel confident enough that COVID-19 has been successfully handled by the Government and that the country can fully recover from the pandemic.

To gauge investors' sentiments towards the Government’s tackling of the pandemic, FJP Investment recently surveyed over 900 UK-based investors with assets in excess of £10,000; excluding residential property and workplaces pensions. Our research showed that, while the SDLT holiday has proven successful in reassuring some investor’s worries, there is still much more than can be done to help sustain a strong post-COVID economic resurgence for the UK.

Following the introduction of the stamp duty land tax (SDLT) holiday, property listing site Rightmove recorded a massive 75% increase in the number of buyer enquiries recorded on their site.

SDLT holiday a hit

Of the investors FJP Investment surveyed, a quarter (24%) plan on buying one or more properties to take advantage of the SDLT holiday, a figure that rises to 43% for those aged between 18 and 34.

Given that buyers can potentially save up to £15,000 through this tax break, it makes sense that those who may be making their first foray into the housing market would be keen to take advantage of the comparative discounts on offer.

However, a larger proportion of investors––43% of those surveyed––believe that the Government needs to offer further support to homebuyers and property investors beyond the SDLT holiday. Just over half (54%) are in favour of extending the mortgage payment holiday relief scheme beyond 31 October 2020, and 57% believe that more financial relief is needed to support the businesses affect by COVID-19.

It would serve the government well, then, to offer extra assistance to those seeking access to real estate opportunities, be it extending by extending SDLT holiday or providing additional financial relief for those affected by the pandemic.

Long-term worries

Perhaps a more pressing worry, though, is that 54% of UK investors that have lost confidence in Boris Johnson’s government generally based on its handling of the COVID-19 pandemic thus far. Investors will be wary of making any large financial decisions if they do not believe that the pandemic is under control.

Fears surrounding a mishandled second spike may limit the success of the SDLT holiday if the Government isn’t able to inspire confidence amongst homebuyers and property investors. The point is that there is clear demand for residential real estate – the challenge is ensuring buyers are given all the tools and incentives they need to make a fully-fledged return.

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The pressure is very much on Boris Johnson and Chancellor Rishi Sunak to assuage these concerns and boost investors’ confidence in the UK. Doing so will ensure that investors’ feel confident in injecting life back into the financial markets; and subsequently triggering a wider recovery of the UK economy. I am happy to say that current signs are indeed promising.

Jamie Johnson, CEO of FJP Investment, analyses the state of the property market and how it is likely to change in the near future.

On 6 July, chancellor Rishi Sunak delivered the so-called ‘mini-budget’. As part of his announcement, a series of reforms were introduced as part of the government’s strategy to boost economic activity. The real estate market is key driver of national productivity and growth. Recognising this, the chancellor announced the immediate introduction of a Stamp Duty Land Tax (SDLT) holiday.

What this means is that all buyers of property less than £500,000 in England and Northern Ireland are exempt from paying the tax until 31 March 2021. However, additional surcharges for second home purchases still apply.

The government backs property investment

The impact of this new initiative was felt almost immediately. Papers reported a ‘mini-boom’ in UK property as asking prices rose and buyers returned to the market in droves. Property listing site Rightmove recorded a 2.4% increase in the average asking price of properties being listed during the month of June. What’s more, the number of inquiries from potential homebuyers increased 75% year-on-year.

While it is still early days, all this indicates that the government’s policy has so far has proven to be a success. Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market. After months of property price decline and housing market inactivity, such impetus should be heartily welcomed.

The announcement of the SDLT holiday also followed Prime Minster Boris Johnson’s ‘build, build, build’ speech, pledging £5 billion to invest in housing and infrastructure. Collectively, these measures are part of the government’s broader vision to meet both the future property needs of the country while at the same time instigating a post-pandemic economic recovery.

Demand which was previously being suppressed due to COVID-19 concerns is flooding back to the market.

Priorities are shifting but demand remains the same

Of course, the pandemic will have lasting effects on society at large; and the property market is no different. As working from home becomes the new norm for many, the need to live within commutable distance from your company is being brought into question. The aforementioned statistics provided by Rightmove showed interest in London properties had only risen by 0.5%, implying that many homebuyers are now seeking properties away from London in light of the COVID-19 pandemic.

Other factors may disincentivise buyers away from London as well. Back in March, Rishi Suank announced a very different type of SDLT adjustment, an additional 2% surcharge for overseas buyers – due to come into effect in April 2021. Given just how integral foreign buyers are to the Prime Central London (PCL) property market, accounting for 55% of PCL transactions in H2 2019, the additional surcharge risks discouraging foreign investment into the capital.

With the lucrative PCL property market becoming less and less attractive for high-end developers for the reasons outlined above, house price growth outside the London commuter belt may begin to grow exponentially in the coming years.

But regardless of where your property portfolio is located, UK property is still proving itself to be a resilient asset class in the face of global crisis. Global property experts Savills confidently stuck by their prediction of 15% growth of UK house prices by 2024, even as the UK experienced the worst of COVID-19’s economic impact.

Their reasoning, which I fully agree with, is based on the idea that the strong buyer demand we saw in January 2020 – which facilitated the highest level of property price growth since 2017 - did not simply vanish when COVID-19 arrived. Instead, this demand was suppressed due to pandemic uncertainty, ready to return once coronavirus was in retreat. Now, bolstered by the SDLT holiday, the UK property market is set to enjoy this influx of previously suppressed demand; and house price growth is sure to follow as a result.

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FJP Investment recently carried out a survey of 850 investors to confirm this, and our findings supported this idea. 43% of those whom we spoke to stated they weren’t making any large financial decisions until they believed the coronavirus pandemic to be entirely contained. It follows that as COVID-19 cases in the UK decrease, these investors will gradually return to the market – increasing general activity and facilitating a prosperous property sector once again.

When this demand returns, I look forward to witnessing the changes that COVID-19 has inflicted upon the UK’s property sector. Will this surge in interest of non-London property continue, and where will the new house-price-hot-spots of the UK be? I, for one, am excited about finding out. As COVID-19 case numbers decrease, and investor confidence rises, we’ll all be enjoying the benefits of a resurgence of UK property sooner, rather than later.

Halifax’s house price index, released on Monday, revealed that the average UK property sold for £245,747 during August, the highest level since records began.

The widely followed index recorded a 1.6% increase on house prices in July and a 5.2% annual rise. This figure fell below analysts’ expected 6% year-on-year increase.

The UK has seen a house price boom in recent months, following the imposition of a stamp duty holiday on home purchases below £500,000 in England Northern Ireland which came into effect in early July. Lockdown measures in the wake of the COVID-19 pandemic also drove many first-time buyers to delay their search for a home, leading to a swell of demand as lockdown restrictions eased.

Halifax noted this demand surge in its release. “A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty,”  the lender wrote.

However, Halifax also warned that the price increase will likely be curtailed soon: "Notwithstanding the various positive factors supporting the market in the short-term, it remains highly unlikely that this level of price inflation will be sustained.”

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Nationwide, a rival lender to Halifax, released its own figures last week that showed prices at record highs in August. According to Nationwide’s data, prices rose by 2% between July and August, and 3.7% from the same period last year.

Many landlords require their tenants to have renter’s insurance policies and will request proof of them before you sign your lease. Not all of them will require it, however. If there’s one thing to take from this article, it should be that all renters should have a policy in case something happens.

Renter’s insurance does more than protect property: it offers protection for costly circumstances that you may not be able to foresee. Renter’s insurance should be part of any savvy renter’s game plan. Knowing what renter’s insurance policies cover can help anyone decide how much they need, even though there’s no-set-in stone answer. Everyone’s situation is different, so their need for this insurance is different too.

What Is Covered by Renter’s Insurance?

If you’re wondering, “How much renter’s insurance do I need?” you need to know why people need these policies in the first place. The main reason people opt for renter’s insurance is to protect their property. Personal belongings outside and inside your apartment are covered by renter’s insurance, but that’s not all.

In the event that you have to leave your rental home or apartment for a while, renter’s insurance policies also cover your living expenses while you’re staying in another place. These circumstances may not be foreseeable and could include an infestation, a fire, or other damage. Living expenses can become untenable in these situations without renter’s insurance.

How Much Renter’s Insurance Should You Get?

The first step to figuring out how much renter’s insurance you need is to calculate the value of your personal possessions and compare it to your budget. At that point, you can compare the quotes of several insurance companies to the value that you calculate in your personal property.

From a policy as low as the average renter’s insurance plans, which cost around $15 per month, you can get tens of thousands of dollars of personal liability coverage and property coverage.

The first step to figuring out how much renter’s insurance you need is to calculate the value of your personal possessions and compare it to your budget.

What Types of Coverage are there?

There are three types of coverage included in renter’s insurance policies. To what extent a policy includes each type determines its value. These coverage types include personal property, loss-of-use, and personal liability coverage. Ask yourself: how much of each type does a typical policy contain? This is important to know so you can spot plans that are expensive for their coverage amounts and those that are a true value.

The average renter’s insurance policy offers around $30,000 in personal property coverage, 40% of the personal property’s value in loss-of-use coverage, and $100,000 in personal liability coverage.

Deductibles are another important factor when choosing a policy. If you don’t already know, a deductible refers to the amount of damage you have to pay for yourself before an insurance policy kicks in. These exist in healthcare policies and it’s no different for renter’s insurance.

An average or acceptable deductible for these policies would be around $500. These policies are considered the best value for those that want renter’s insurance for coverage but aren’t necessarily worried about a specific accident. Those that want a lower deductible should expect to pay a much higher per month premium.

The disadvantage of cheaper policies is that the deductible is much higher, which is fine until you have to pay it. There’s also not much of a drop in the price per month for losing 50% or more of your coverage amount. A few dollars less a month will lower your coverage amounts considerably. This is why policies priced at or near the competitive average are often the most desirable.

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The Takeaway

Renter’s insurance policies involve three different types of coverage, including personal property coverage, personal liability coverage, and loss-of-use coverage. Knowing how much renter’s insurance you need depends on the value of your belongings compared to the needs of your situation.

Since the value of renter’s insurance policies decreases drastically with only a small reduction in the cost per month, average renter’s insurance policies are often the most desirable. Use this information to conduct more research into available companies to find the right renter’s insurance policy for you.

Based in Chicago, Craig has worked in the commercial office leasing industry for the past 25 years and has represented a broad range of tenants locally and nationally, including law firms and other professional service firms, trading firms, corporate entities, non-profits, and technology companies. Headquartered in Chicago and with a second office in the Detroit market, Advocate’s sole focus is representing the interests of office and industrial tenants in their leasing activities. Acting strictly as a tenant’s “advocate”, the company and its principals do not lease or manage property for landlords.

Below, we hear from Craig about the current state of commercial real estate markets and what the future holds for them.

What is the current state of commercial real estate in the markets you serve? How has COVID-19 affected the market?

The watchword for the current market is uncertainty. What seemed to be a well-balanced supply and demand situation early in 2020 has shifted dramatically as leasing and development activity ground to a near halt. I can cite a score of examples of tenants who were on the verge of signing long-term leases for space who have (1) put the entire leasing process on hold, (2) signed much shorter-term leases while they assess how their own businesses are going to be affected long-term, or (3) decided to close their offices completely to focus on other markets or in some cases opting for a full work-from-home model.

Demand for space has fallen substantially, reflecting the rapid decline of the economy. After a decade or more of growth and the strengthening of a landlord-friendly market, most commercial real estate markets are on the cusp of a dramatic turn to a more tenant favourable environment. I say on the cusp because commercial real estate markets have historically been very slow to respond to economic downturns and, as of yet, have not seen the full impact in the form of lower rental rates and increased lease concessions.

What will be the pandemic’s long-term impact on commercial real estate?

There are a lot of conflicting opinions on this topic. The forced experiment with work-from-home models has opened a lot of eyes to something that was not really considered by most tenants. If work from home becomes a lasting concept on the scale we see now, the long-term effect on commercial real estate will be hugely negative for real estate owners and investors.

Countering that effect is the immediate need for larger office space to accommodate for social distancing. The trend over the past couple of decades has been toward denser occupancy with smaller and fewer private offices, bench seating configurations replacing larger workstations, and collaborative space for employees to meet and interact. With a growing perception that physical separation in the workspace is imperative, not just for dealing with COVID-19 but for unforeseen future health concerns, the space footprint for many tenants is likely to increase.

Our perspective is that the long-term impact is not going to be extreme. There will be a larger contingent of the workforce that works from home most of the time, but the social, collaborative, supervision and workplace efficiency needs of most tenants will drive a continued need for office space. No one has a crystal ball on this subject, but we believe a few years from now, the market will have adapted to changing needs and will be back to a somewhat “normal” status.

Are there any specific examples of industries that will experience long-term changes in how they use space?

Most industries will be impacted, and the legal profession is a good example. Over the years, law firms have pushed for more efficiency in how they use space. One of the metrics that is used to measure efficiency for law firms is the amount of space leased divided by the number of attorneys.  Over the past two decades, this ratio has decreased from roughly 1,000 square feet per attorney to 600 square feet per attorney. This has been accomplished by a reduction in the size of attorney offices, implementation of a single size office policy for all attorney offices, and more efficient use of space by adding associate attorney offices to the interior of the space.

Historically, law firms have not embraced alternative officing concepts like hoteling and shared offices for attorneys. Without these office strategies, however, it is very difficult for a law firm to achieve the desired efficiencies below 600 square feet per attorney. That may be about to change.

As we move back toward “normal” after the pandemic is under control, we expect that most attorneys will return to the office full-time. However, due to the forced adaptation of work habits, some attorneys may choose to split their time between home and the office. This will prompt law firms to take a hard look at a shared office concept, whereby a certain number of attorney offices will be designated as “shared”. To use the office, an attorney will reserve the office for the day. This concept will reduce the number of private offices needed and allow law firms to achieve efficiencies below the 600 square feet per attorney threshold.

Tell us about Advocate’s services and the process of assisting office and industrial tenants with their leasing needs.

We provide a full scope of tenant representation services to our clients, from initial strategy development, site selection, lease restructures, lease negotiations, and construction project management.

One of the keys to a successful real estate leasing process is the upfront definition of the requirement. Before diving in and looking at various building and space options, we roll up our sleeves and work with our clients to develop a detailed real estate strategy. It is imperative that this real estate strategy is consistent with the overall business strategy. The business needs must drive the real estate solution, not the other way around. When this part of the process is complete, we have the full picture and a well-defined strategy that details the desired location, approximate space layout and need, technology requirements, economic considerations, as well as a host of other factors.

Next, we engage the market by creating a competitive marketplace for our clients’ occupancy. This is accomplished by seeking out all buildings that meet our clients’ requirements. Because Advocate does not represent any landlords, all potential buildings are put on an even playing field. We are never in a position where we have conflicting loyalties to both a tenant and a landlord. By leveraging all potential locations through our competitive negotiation process, we are able to achieve the best possible economics and deal structure for each of our clients.

Through our related company, ACRE Project Management, we assist our clients with the renovation, construction, and relocation processes. ACRE coordinates all construction-related activities and vendors, including architects, engineers, contractors, furniture vendors, IT specialists, movers, and so on. Additionally, ACRE manages the entire process to assure that the space is delivered on time and on budget.

Although Advocate’s and ACRE’s offices are in the Chicago and Detroit markets, we have worked with our clients on their leasing requirements from coast to coast in the United States. It is this familiar process, working side by side with our clients and fully understanding their requirements, that enables us to achieve the best results wherever that need may be.

What are the benefits of using a commercial real estate expert like Advocate?

Tenants go through the leasing process only once every several years, and even then, many try to avoid it due to the perceived hassle and potential disruption of relocating.  We are in this business every day, and one of the biggest benefits is that we guide the process from start to finish and simplify it for our clients. There is no big learning curve on their part to overcome.

One of the other big benefits is market knowledge. When most people think about leasing office or industrial space, the focus is on the rental rate. While important, numerous other factors make up the total leasing package. A critical piece of what a good tenant representative brings to the table is an understanding of the market norms and what to ask for regarding construction allowances, free rent periods, rent increases, early termination rights, renewal rights and several other factors consistent with current market trends.

What is a lease restructure and when is an appropriate time to consider it?

A lease restructure is a renegotiation of an existing lease well in advance of its scheduled expiration. With a restructure, a tenant receives near-term economic benefits in the form of reduced rents, improvement allowances, free rent, and other concessions in exchange for a longer-term commitment to the landlord. From the landlord’s perspective, they are motivated to offer these renegotiated terms to avoid the high cost and risk associated with the tenant moving at the end of the lease term.

In our experience, the “sweet spot” for a lease restructure is two to three years prior to the lease expiration, although, in some instances, we have been able to achieve a restructure as many as four years in advance. The restructure opportunity is presented to a landlord as their chance to lock up a tenant for a longer-term before exploring the market is practical. When the remaining lease term gets down to a year or 18 months, it is no longer really a restructure because the option to relocate is more realistic.

There are other factors that could impact the timing of a lease restructure. For example, if a landlord wants to refinance debt that is coming due in the short term, it may be a good time to approach this specific landlord with a restructuring opportunity. Longer-term leases reduce rollover risk, which may lead to better refinancing terms for the landlord. Likewise, if the building owner wants to sell the property, longer-term leases may increase the valuation of the building, leading to a higher selling price.

Is now a good time to restructure your lease?

Given the level of uncertainty in the near term, now is a terrific time for lease restructures. From the landlord’s perspective, finding and keeping good credit tenants is critical. If a tenant vacates a space in today’s market, the amount of time required to find a replacement tenant is extremely long and uncertain. Additionally, the cost to rebuild the space for a new tenant is very high relative to the cost of refurbishing the space for an existing tenant. From a real estate lender’s perspective, longer-term leases with good credit tenants reduce risk and make lending against the property more attractive.

If work from home becomes a lasting concept on the scale we see now, the long-term effect on commercial real estate will be hugely negative for real estate owners and investors.

These issues, coupled with the weakening rental rate environment, present the opportunity for tenants to gain significant costs savings and concessions by restructuring their existing leases now.    Landlords will benefit through a longer-term and secure cash flow as the tenant agrees to extend the lease term. Additionally, tenants will benefit from an immediate reduction in the rental rate, money to improve or modify their space, free rent periods or an immediate reduction in the size of their space. Securing an existing tenant for a longer term is something any landlord would desire in a normal market, but that is only enhanced in a softening market like we are seeing now. It is truly a win/win/win situation for the tenant, the landlord and the lender.

It is important to note that many of the restructures of leases we negotiate do not cover the same physical space footprint. In changing times, often tenants will need to reduce or expand their size.  An early restructure of a lease can accomplish a downsizing, expansion, or significant reconfiguration of the space without the need to wait on a lease expiration.

In what ways has the pandemic affected your business? How have you overcome the challenges it has presented?

Our business has experienced a significant change in the past six months. On one hand, many leases that were on the verge of being signed were put on hold while our clients wait to see the longer-term impact of the pandemic on their operations. Fortunately, many of these transactions have only been delayed, not abandoned. We expect to see a substantial rebound for this portion of our business in 2021.

While the relocation/renewal portion of our business has slowed, the restructure portion of our business is very active. The transition to a tenant favourable market leads to enormous opportunities for our clients to save money on their existing leases. The past ten years have been very favourable to landlords, with rents increasing year after year and concessions packages declining. During this time, lease restructures made up 20% of our business in any given year. As the tenants’ market continues to evolve, we expect that lease restructures will make up 75% of our business activity.

At Advocate, we have adopted somewhat of a contrarian view as we work through the COVID-19 slowdown. We see great opportunity in the coming years and have been hiring in anticipation of a greater need to service both existing and new clients with their changing real estate objectives.  Onboarding of new hires has been a challenge, especially during the early phases of the shutdown when there was no opportunity for in-person interaction. Like most companies, though, we made extensive use of technology in our work from home phase and barely missed a beat.

What do you think the rest of 2020 holds for commercial real estate?

The balance of 2020 is a pretty short time window, so I think we will continue to experience a pause in major activity. Many larger companies are just starting to move toward re-occupancy of their offices, and some have put off such a move until the first of the year or later. With the pandemic still not under control, there will still be a great deal of wait and see. We would expect to see the start of a rebound in activity in early 2021.

The rapid shift from a landlord favourable market to a tenant favourable market is beginning to manifest itself in the form of more aggressive concession packages. Landlords are now offering longer free rent periods and greater tenant improvement packages. Rental rates have remained steady for the short term, but we expect to see a weakening in rental rates, starting in the fourth quarter of 2020. I would not expect to see a steep decline in the near term, but landlords who try to firmly hold the line on rental rates are likely to miss out until the market makes a comeback.

What are your goals for the future of Advocate?

When we started Advocate 18 years ago, there were a significant number of competing tenant representation firms such as Staubach, Equis and many local and regional firms. Over the years, many of these tenant representation firms have been acquired by larger competitors. This consolidation has resulted in the emergence of several large firms with enormous overhead i.e. JLL, CBRE, Cushman & Wakefield, and Newmark, among others. As the demand for office space declines in the short term and the revenues of these large firms are negatively impacted, we expect to see significant cost-cutting.  We see this as an opportunity for Advocate to add seasoned professionals to accommodate the growth in our business.

Our long-term plan is to continue to remain independent and to emphasise our personalised, professional, and most importantly, unbiased service. For now, we will continue to grow in both the Chicago and Detroit markets, but we will actively consider expanding our footprint into other Midwest markets under the right circumstances.

Renovations and improvements are the best ways to raise your asking price without scaring potential buyers away. We spoke to property experts Zoom Property Buyers who help people sell property in London.

Zoom Property Buyers are a premier cash real estate buyer and gave us some great tips to make your property more saleable and get the best price and return on your investment. If you are running a property renovating company, selling  for cash is also a  fantastic way to move business quickly and efficiently with no estate agent fees and a super quick sale helping the business move forward.

Here are some simple things you can do with your property to increase its value without breaking the bank.

Paint your living room

The living room is where families spend most of their time together. It facilitates bonding and will hold many fond memories. You can use this to your advantage and invoke some emotions in your potential buyers. A fresh coat of paint can go a long way in making your living room more appealing. Recent trends suggest that taupe paint might be the way to go. It's the right combination of contemporary and soothing. You'll love it, and your potential buyers will love it, too.

Resurface your cabinets

The kitchen is one of the most attractive and valuable parts of a home. Unfortunately, remodeling a kitchen can also prove to be quite expensive. If you don't have the money to remodel your entire kitchen, stick to your cabinets. Resurfacing your cabinets can add significant value to your kitchen. Plus, the look of a new, clean layer of wood on your cabinets can speak volumes about the condition of your entire kitchen.

Resurfacing your cabinets can add significant value to your kitchen.

Change the colour scheme of your kitchen

While we’re on the subject of kitchen value, changing the colour scheme of your kitchen can also raise your asking price. Current trends in real estate have it that lighter upper cabinets and darker lower cabinets are the way to go. The scheme is called tuxedo cabinetry, and statistics show that it can raise the value of a property by as much as £1,500. You may admire your current uniform colour scheme, but if you want to add real value to your home, you should swap colours.

Replace your carpeting with wood

Carpets are add-ons, and while you may find yours appealing, your prospective buyers can be turned off by them. Instead, remove the carpets and expose your hardwood floors. Besides the fact that a wood floor adds character to a home, wood is durable and easy to maintain. If your home doesn’t have a wooden floor, laying one can be an excellent investment. You can even spend less on engineered or laminated wood. You can get them at a fraction of the cost.

Get some steel entry doors

Steel entry doors may give off the appearance of additional security, but that’s not why they are on this list. Steel doors can improve the appeal of your curb. If you’re selling an inherited house, you may want to replace the old doors with steel ones. They are sleek and come in various kinds of paneling and finishes. Also, steel entry doors are incredibly durable, so you won’t have to worry about them for a long time, even if you change your mind about selling your home.

If you’re selling an inherited house, you may want to replace the old doors with steel ones.

Upgrade your light fixtures

If you’re living in an older house, you’ll definitely need to pay attention to some of the details. As industry trends move to more modern styles, so should your home's decor. You can begin with your lights. If your home has the construction-installed thick and round mounts, you need to upgrade to new, sleek ones. The good news is that you can get fixtures in various price ranges, and they will all add significant value to your home. New light fixtures are basically the building blocks of a modern style.

Reorganise your garage

Most people hate this task, and they hope they never have to do it. But then, think about it. If you hate it, your buyers will probably hate it as well. Nobody is going to want to pay top dollar for a home with a cluttered garage. You should take out a day (or a week depending on how cluttered your garage is) to reorganize your garage. Since the garage is basically the home’s storage space, you should invest in some shelves or hangers for the stuff in your garage. It will definitely clear up the room and make it look more appealing.

Paint the garage floor

Now that you can see the floor, how about adding a new coat of paint? Paint is relatively inexpensive, and a new coat of acrylic paint made for floors will go a long way. Very rarely do people have lots of space in their garage. A shiny floor will only add to that impressive feature of your home and impress your potential buyers. While it might not raise your properties value by thousands, it will make an impact on whoever sees it.

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Trim your trees and edges

According to UK Forestry, trees can raise the value of a house by up to 20%. However, if your tree is unkempt, it can have the opposite effect on your property value. The good news is that you even need a contractor to take care of your trees. Simple tasks like applying tree fertiliser, trimming and pruning, and even spraying can keep your property value where it should be. The same thing goes for hedges and bushes. They make a home more attractive, but not if they look jagged and overgrown. If you don’t want to do it yourself, you can pay a gardener a few pounds to trim the hedges. Your property will thank you.

Pay attention to minor repairs

If you’re serious about raising the value of your property, then the chances are that you've already started making some repairs around the house. Replacing broken windows and dented door jambs, and filling cracked plasters are projects you've probably done already. If you haven't, you should consider doing so. Little cracks and imperfections can send unwanted signals to potential buyers. They can make the home appear older than it is, or diminish its overall appeal.

It might even be worth getting a loan to pay for the renovations, as the value added will make the investment worthwhile.

The REIT sector tends to be one of the more defensive segments of the market and has consistently outperformed the S&P 500 in recessions and early recoveries, according to a paper by Cohen and Steers. The main thing that makes REITs a really strong defensive sector is predictability. While that varies a bit from company to company, largely, REITs’ revenues come from long-term lease contracts. That means that even in times of big uncertainty, those contracts are still in place and are delivering cash flow.

So, in theory, REITs should have outperformed the broader market once again, but clearly, that’s not the case. What’s different this time around?

Decreasing cash flows

Investors are already pricing in the second wave of COVID-19. With cases rapidly increasing around the world and especially in the US, concerns are largely weighing in on market prices.

Undoubtedly, the pandemic is a big problem for all sectors alike, with consumer demand going down and unemployment skyrocketing. But why has it been particularly bad for REITs?

The answer is that it all comes down to systemic risk. With mounting defaults and companies facing increasing financial difficulties, especially in the hotel and retail sector, this has led directly to huge stress in the real estate market - with rent collections going down by 50–60% for some industries. No one could have expected that half of their clients will stop paying rent. Things are looking even more bleak in the mortgage REITs space, where we’ve seen an unprecedented 12% forbearance in jumbo loans. However, decreasing cash flow tells only half the story.

The REIT sector tends to be one of the more defensive segments of the market and has consistently outperformed the S&P 500 in recessions and early recoveries.

Debt

A big part of the stress the sector’s experiencing right now is caused by the debt levels in the space. REITs are known to be some of the biggest users of leverage, which has helped them deliver superior returns in crisis-free times, but in the current environment, investors seem to be increasingly avoiding companies loaded with debt.

The average debt to equity ratio of the 174 biggest US REITs stands at 1.96, which is a very large number compared to the average for the S&P 500, which currently stands at a conservative 0.53. Looking at the debt to assets ratio, we see a similar scenario, although the difference there isn’t as large. The average for the S&P 500 is 0.32 for the last quarter, compared to the 0.45 for the REIT index - a sizable difference of more than 35%.

These solvency ratios have been one of the main concerns for investors in the past months, but the reason for that may be a bit unexpected. Everyone knows that in a vacuum, high leverage ratios are not good because they signal that the company will have trouble meeting their financial obligations in the future. However, we’ve recently seen a trend that’s even more concerning. Solvency problems can turn to liquidity problems really quickly, especially in the current environment. We’ve seen this happen to quite a few companies, the most recent example being EPR Properties which failed to uphold a few of the requirements set by the negative bond covenants, specifically the solvency and coverage ratios. This then led to some difficult talks with the creditors, but eventually, the company managed to avoid a technical default and some of the requirements were amended. However, this comes at a cost. With the increasing risk for the creditors, the cost of borrowing for the company also rises, which in turn can cause a liquidity crisis in the coming months.

REITs have always used a lot of debt and up until now, they’ve managed to correctly estimate their risk and exposure and avoid disasters. Their capital structure allows for some leeway during a significant economic downturn and considering the long-term structure of leases, a sudden drop in revenues has always looked almost impossible. What no one could have predicted however is this year’s Black Swan event, which led to a sudden stop in the economy, and not a downturn. The REIT sector was somewhat prepared for it with a considerable amount of cash reserves and undrawn credit lines, so the first wave didn’t lead to any major defaults in the market. The shock, however, significantly deteriorated the liquidity of most companies and in the case of a second wave, some companies will inevitably go under

How to mitigate some of the risks

One way investors can reduce their risk is by consistently averaging down and accumulating their position through many purchases. Lump-sum investing can prove really dangerous for the more risk-averse investors, especially in times of increased volatility. We can’t be certain of the direction of the market in the short term, but over the long term, REITs have proven their tendency to recover from crises and deliver superior risk-adjusted returns.

International rolling lockdowns has left an undeniable mark on the economic future, leaving many of us uncertain and concerned about our wealth. The world is changing rapidly, and these changes influence investor preference; meaning that suitable investments in 2019 may no longer be solid sound choices. Even though predictors can sometimes be misleading, the following predicted trends are most likely to survive the impacts of the economic downturn and reward savvy-investors with high profits.

Digital Currencies

Digital currencies such as Bitcoin, Ethereum, and several others are leading the way towards an innovative future. There has never been a better time to invest in blockchain-based currencies as profit margins have not shown negative influence as a result of the Covid19 outbreak. If you are looking to invest in Bitcoin, you will be able to transact between traditional currencies and digital currencies according to your strategy, which means you can move from Bitcoin to Euro or vice versa.

The value of Bitcoin is fuelled by popularity. Because investors did not pull out at the first signs of economic uncertainty, many now consider the revolutionary digital currency a safe haven investment in line with likes of commodities such as gold.

Micro Investing

Micro investing is fast becoming a popular trend in the world of investors as the solution allows anyone to invest, even with smaller amounts. As we witness the launch of several innovative micro-investing apps and platforms, this trend serves as an opportunity for all to build an impressive portfolio regardless of existing wealth. You will be able to spread your investments over several opportunities and gradually add funds as your budget allows.

In days gone by, only those with large lump sums of money could invest in lucrative opportunities, where we are now gifted with the opportunity to invest with as little as $10. The solution also allows investors time to navigate the markets without concern of losing everything.

Invest In Real Estate

It’s not exactly news that investing in property can be exceptionally lucrative, although, most of us assume you need quite a fortune to invest in real estate and so, we shun the idea. However, for those who would like to invest in real estate without having to worry about the nagging details such as caring for properties and tending to maintenance issues, real estate investment trusts are the perfect solution.

A real estate investment trust is quite similar to mutual funds while being strictly aimed at properties. With the prices of houses continually rising, this type of investment may genuinely be the perfect solution for those who would like to profit from properties without actually having to buy them.

Tailor Your Strategy

Before you start investing, pulling out of existing investments, or diversifying your portfolio, it is crucial to crafting a tailored investment strategy. Now more than ever, it is vital to monitor your investments daily, especially if you are opting for stocks. Feeding investments should only be made on value declines to boost profits.

The question is: How hard exactly will this recession be felt in the real estate market?

We are seeing that the investor response in all market segments is increasingly different and that the current crisis has exacerbated the following existing trends.

Strong office market, weakness in retail, and resilience in the industrial and logistics sector

During the first quarter of 2020, we observed a solid performance in the office sector with 3.6% rental growth YoY. We don’t expect the growth to continue during Q2 and Q3, because this sector, in particular, is highly cyclical and the insolvencies and reduced demand caused by the recession will surely put downward pressure on rent. However, considering the long-term nature of commercial leases, this part of the market is expected to remain relatively stable. Our projection is for no rental growth in the next 2 quarters.

Reduced deal volume

Investment deals were down 75% in March and the number of cancelled deals is also on the rise. Nearly 3.5% of the commercial deals have been scrapped since March, compared to a 1% average over the past five years. The dampened demand for investment will draw down prices, but on the other hand, that increases the prospect of higher yields in the future. The mean yield for prime office space in Europe was 4.2% in the first quarter of 2020. If we see downward pressure on prices in the next few months, a rise in yield will be sure to follow.

The sentiment in the retail market is a lot different

Following all the structural changes in this market in the past few years, coming primarily from the rise in online sales, the outlook has turned from bad to worse. The timing of the recession could not be any worse for this sector - after two difficult quarters with 0.1%, and 0.3% decline in rents, we are expecting the decline in rent to steepen and the fundamentals to deteriorate quickly. One of the biggest issues here is rent collection. Recently, the British REIT Intu Properties shared a press release stating that they expect to collect only 63% of the rent due in 2020. That shock has also led them to discuss some of the negative bond covenants with their investors. Another prominent player in the UK market, Hammerson plc, expects to receive only 57% of all rents for this year.

In the retail space, we can currently observe the biggest gap between “good” and “bad” properties. Most recent analysis shows that the properties that are able to collect the biggest percentage of rents are the top percent of prime high-street properties. There’s also a huge divergence between the very large shopping malls and small to medium-sized shopping centres. Smaller properties are expected to suffer the bigger part of store closures. This is why when looking at European retail REITs, the most important part will be to analyse the individual tenants and assess the default probabilities.

The Convenience/essentials space has been left relatively unscathed

Companies like France’s Carmila SA and Italy’s IGD SIIQ S.p.A which focus mostly on grocery shops and pharmacies have performed relatively well during lockdown and are expected to outperform in the near term.

There hasn’t been much change in the market from a geographical perspective

Benelux and the Nordics are the hardest-hit regions where rental income fell more than 5% year-over-year. Considering that those are some of the regions that suffered the most during the pandemic, we expect to see continued downward momentum in these markets. Germany and France seemed more robust before the crisis, with rental incomes falling a modest 0.1% during the first quarter and yields mostly stable.

The one region that looks hopeful for the upside is Central and Eastern Europe. The retail market in the region has been hot in the past few quarters, and rental income grew 4% during the first quarter of 2020. Considering that most of the countries there weren’t affected as hard during the pandemic, and measures were lifted earlier in Romania, Poland, Bulgaria and the Czech Republic, we see the possibility for quick market recovery and even a positive year-over-year growth in both rental income and rental yields.

Industrial and logistics properties have proved to be some of the most resilient

In the first quarter, we observed a Europe-wide growth in rental income of 2.5% while yields were mostly flat. The logistics sector has seen a boost, widely due to an uptake in e-commerce during the quarantine period. UK’s Tritax Big Box Reit Plc and Belgian Warehouses de Pauw have performed exceptionally well and quickly returned to pre-crisis price levels. It’s highly likely that the fundamentals for this sub-sector will continue to improve and we may see a year-over-year increase in yields for the entire 2020.

Overall the market environment remains highly uncertain. We continue to monitor the most recent developments and in the near term, press releases for Q2 results will be the biggest driver of price volatility in the EU REIT space. Office space and logistics property providers seem to be holding up quite well, and we don’t expect huge movements in this space. Companies managing primarily retail portfolios have been hit particularly hard, and prices fell broadly in the past few months, irrelevant to individual performance and fundamentals. That’s why there is plenty of opportunities to be found. As mentioned above, retail operators focused on essential shops and prime high-street real estate are great prospects for superior risk-adjusted returns. And while Western Europe will face a lot of stress in the next few quarters, perhaps now is the right time to look east!

This industry has never been noted for leading technological progress. Its reliance on paper-based processes, even among the larger, better-resourced firms, is well known. Unfortunately, these technological shortcomings have been exposed in stark fashion as the COVID-19 pandemic forces most companies to rely on remote working and communications. This extreme stress test has made even some of the larger real estate companies realise their digital capabilities are woefully inadequate.

In particular, the crisis has revealed the poor quality of networks at many real estate companies and the low priority often given to data security and protection. This lack of security has even led in some cases to the ‘free’ software they use tapping into the data of users for advertising purposes. ‘Cookies’ and spyware can automatically collect individuals’ shopping and viewing habits via search engines to better direct adverts that provide revenue, raising concerns about organisations’ own levels of privacy and security, too.

Essential steps to digitalisation

If real estate companies are to take on board the lessons of this crisis and successfully modernise their digital systems, then they must:

• Improve the reliability and security of their IT systems.
• Vet their software providers, checking company registrations, legal entities and jurisdictions. Contracts must specify where data is stored, how it is saved and who has access to it.
• Ask IT service providers to prove the standards of their processes via certifications.
• Switch to mobile working and make more use of artificial intelligence (AI) and application programming interfaces (APIs).

Recognition of these challenges and appetite for change is certainly prevalent in the industry. New research commissioned by Drooms¹ found that two thirds (67%) of real estate professionals say their organisations’ efficiency would increase if their systems were to have seamless integration with third-party platforms that give them access to a variety of functionalities. Nearly a third (32%) believe this improvement would be ‘dramatic’.

API offers a seamless integration solution

A leading-edge solution for achieving seamless integration is an Application Programming Interface (API), which enables the interconnection of software systems and data between businesses and third-party providers, representing a major step forward in streamlining workflows. Nearly two in three (65%) respondents in our survey nominated APIs as the IT feature they would most like to see incorporated into the tech they use, versus 29% who cited ‘security’ and 15% ‘blockchain’. More than half (59%) of real estate professionals would like to see APIs improved, ahead of other tech features, such as security (41%).

Drooms has opened up its API to its clients, meaning they can seamlessly integrate their VDRs with a range of software systems. These systems include real estate market analysis software that enable clients to consolidate fragmented data and make immediate comparisons of their portfolios against the wider market. This means data-driven decisions can be made quickly without having to log in and out of several systems, draw on various information siloes or work between applications.

With so many staff having to work from home across Europe, the fragility of companies’ IT networks has been exposed. It is now clear that for teleworking to work successfully then companies must implement adequate software tools. They must invest in high-functioning and secure technology that is going to optimise current workflows rather than demoralise their staff.

These tools must reduce pressure on servers, include appropriate data file sharing and storage systems, solve any issues with document formats and make data easily accessible to authorised people and teams, enabling access via a range of devices e.g. browser, app, mobile, etc. This latter function can be problematic given that the security in place inside company firewalls is completely different from that in homes, presenting a tough challenge for many companies.

COVID-19 crisis is likely to change attitudes

Many real estate companies have yet to fully address these issues. While some generic file sharing and storage systems can help companies, these can only provide make-shift solutions. For a complete and secure set-up, companies should look to specialised services, and ensure they take great care in vetting their providers.

The COVID-19 crisis is highly likely to change attitudes and focus company leaders’ minds on bringing about such changes - especially when they realise that a lockdown could be re-instated at short notice for some time, possibly even into next year.

(1) Source: Survey conducted between 28 January and 21 February 2020 by PollRight. The panel of 34 real estate investors covers both fund managers and investors across Europe.