Many middle to large sized firms in the UK renegotiating the cost of their commercial premises.
Essenden, the tenpin bowling operator stated that ‘many of its sites were ‘over-rented.’ To put that another way, they feel that the main thing holding them back from making profits is the cost of the rental on the buildings themselves.
Essenden are now in negotiations with the landlords to reduce these overheads.Landlords who rent this type of commercial property will have few alternative tenants queuing to take their place and will likely be persuaded to reduce the rent in order to at least keep the tenant in situ.
Why UK Commercial Property Investments Fall
The same thing is happening on our local high streets and commercial centers all over Britain. Businesses are waking up to the fact that commercial tenants are now few and far between and using it as leverage to get their rental costs down.
Current economics within the UK dictate that commercial property land values must eventually fall regardless of what house builders or governments do to try and stop it. Many businesses have problems keeping up with rent in such a tough economy and therefore prices of land and commercial property must reduce if the landlord expects to keep their tenants.
Poor Economy & Bank Restructures
It’s widely expected that in 2011 that the poor economy and continued rental weakness will curb any kind of real price recovery. In fact, British commercial property values fell 5.6 percent over the whole of last year.
The recent IPF survey last year stated that;
“It was expecting average rents for offices, retail, and industrial properties to fall 4.4 percent, and the trend is set to remain almost flat in 2011 with just a 0.1 percent rise before improving 2.4 percent in 2012.
There is little evidence of any expectation of occupier demand driving rental growth until 2012. Weak rental value growth forecasts across the sectors are understandable against a back drop of continuing weak economic data.”
Furthermore, bank restructuring will mean an increasing level of commercial property stock coming onto the market as banks release them to bolster their own bottom lines. We could be seeing a scenario in the near future where supply will begin to rise just as demand is falling back.
