Why Rents Won’t Rise Enough to Save Buy-to-Let Landlords
Jul 21st, 2008 | By John Stepek | Category: Real Estate InvestmentsWhy rents won’t rise enough to save buy-to-let landlords… Commercial property still has a long way to fall.
Buy commercial property, the City folk said.
Commercial property’s a sure thing. Rents can only ever go up the way, after all. And London is the centre of the Universe. Everyone wants to live and work here. We’ve got financial acumen, great culture, fantastic restaurants, and a congestion charge that keeps poor people from clogging up the roads with their squalid little white vans and cheap cars.
How could demand ever fall?
Well, we all know now that the London bubble was yet another offshoot of the credit bubble. And now that it’s popped, the property market for both business and leisure just isn’t looking such a sure thing anymore…
Demand for commercial property fell at its fastest since 1998 during the second quarter of the year, reports the Royal Institution of Chartered Surveyors (Rics). A full 50% more surveyors said they saw demand falling rather than rising, down from 31% in the first three months of the year.
Rics’ chief economist, Simon Rubinsohn, said it was “the sheer negativity” of the survey that struck him. The idea that tenant demand is now falling, as well as investment demand is the worrying aspect. “There are no positives out there right now,” he told The Telegraph.
On top of this, retailers in particular – where the market and demand are at its weakest - are starting to get bolshy. According to weekend press reports, big players including Boots, Argos, and Sir Philip Green’s Arcadia empire, are getting together to try to put an end to the practice of paying quarterly rental payments in advance. They’d rather pay monthly.
The big commercial landlords of course won’t like this. Getting that kind of money up front is a valuable safety precaution in a downturn. And the retailers have signed contracts after all. One told The Sunday Times that “the idea that we will roll over and let our tummies be tickled is way off target.”
But from a retailer’s point of view, having to pay that money upfront is a lethal threat to cashflow during a downturn.
Source: Why Rents Won’t Rise Enough to Save Buy-to-Let Landlords
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John Stepek is Deputy Editor of the UK-based financial weekly MoneyWeek. He is also the editor of daily investment email Money Morning UK. John graduated from Strathclyde University in 1996. He has worked for a number of financial magazines and newsletters including Families in Business, Shares Magazine and The Sunday Times.