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British Council of Offices Conference- the Ripples Continue

B_B_BCO-BIM-Research2013British Council of Offices Conference Challenges Outmode Approach to Office Space.

The British Council of Offices (BCO) Annual Conference brought together the BCO’s membership – a mix of senior figures in organisations responsible for designing, building, owning, managing and occupying offices in the UK. (Although now done and dusted it is still worth reflecting on in anticipation of May 2014.) Approximately 450 delegates attended the Conference in Madrid, considered to be one of the property sector’s premier events.

The BCO Annual Conference  opened with a warning to representatives that much of the existing London commercial property market was becoming outmoded at a far greater pace than previously thought. Even some properties as young as 20 years were not keeping up with the modern office occupier requirements.

Lord Myners, a former chairman of Land Securities, was addressing the delegates at the first plenary session, ‘A Brave New World’, put forward that growing density requirements and hindrances caused by the antiquated planning obligations of section 106, and a need for on-going  enhancements to basic office functions such as high speed lifts and green-type air conditioning challenged the sector to keep abreast of customers wants and needs.

It was also emphasised by Lord Myners that the sector would need to adapt to a whole new office specification in order to continue attracting this new customer base since increasing demand from the Far East investors for commercial property in London was rising.

Another speaker, Sir Stuart Hampson, called on delegates to continue developing buildings of quality and resist the temptation to prioritise space over specification. He advised that sustainability shouldn’t just be a slogan, neither should energy efficiency; austerity would show up any high energy costs and make buildings seem prohibitively expensive to let if designers did not keep up with the times. Hampson argued that the public space around workplaces is equally as important as the interior –this would require investment in infrastructure and support from local authorities for public transport links to office developments. Hampson concluded by maintaining that it was necessary to treat tenants as customers, working hard to keep them engaged in order for office owners to become worthy landlords.

Research released in 2012 by the BCO found that building owners are underestimating the extent of obsolescence if existing valuations are used.  Those valuations suggest only 6% of UK offices are obsolete. However further interviews done by BCO with investors suggested that figures are more likely to be up to 15%. This suggesting that an even greater proportion of office stock won’t meet their future requirements.

The BCO has managed to identify an opportunity for developers and investors alike to assist in ensuring offices are suitable for the purpose of their occupiers, thereby reducing the proportion of offices classed as obsolete in future, and has previously called for office investment strategies which give as much importance to asset quality fundamentals and location as possible returns.

Next Conference

14- 16 May 2014
ICC, BIRMINGHAM

“The 2014 BCO Annual Conference is taking place in Birmingham, which is one of UK’s most vibrant, cultural and dynamic cities.

The 2014 Conference will focus on discovering new ways to create modern and innovative environments for people to work in. We’ll also be hearing from industry leading professionals on how changing certain elements of the working environment would help increase productivity and wellbeing. There will be topics and discussions on sustainable buildings with the session titled ‘On the Tin’, talks on ‘The Evolving Office’, how information technology is evolving, also how ‘Future Cities’ are re-inventing themselves and much more.. 

Birmingham has its stigma of being the industrial city, but with the investment and time put into reinventing its hub the city has become an exciting and innovative place for modern architecture and design. This conference will provide an excellent opportunity for delegates to visit projects showcasing energy efficient buildings and large campus headquarters.

Make sure you don’t miss out on this exclusive 2014 BCO Conference!” (From the BCO.org Website)

Is there a pony in the room?

So you’ve  heard the story about the twins with opposite dispositions to a room full of manure? No? Well the pessimist looks at the manure gloomily and can only see a pile of dung. The optimist on the other hand casts the manure gaily into the air and intones: “with all this manure there must be pony here somewhere!”

So when we are faced with the prospect of  a specialist residential fund listing on the JSE our response  may have more to do with how we observe the manure in the room than anything else. And yes folks there is manure in the room.

TPNhave announced troubling stats indicating that “tenant payment behaviour has deteriorated for the first time in 24 months” Rental Payment Monitor Q2 2011.

To be precise they cite that “higher unemployment, high household debt and a substantial increase in the cost of electricity, fuel and food, all of which affect monthly expenses and hence the ability to pay rent.”  And yet there is a pony since they also point out that rental stock is lacking for the below R3000 and R3000-R7000 per month, brackets.

There’s more: International Housing Solutions (IHS) South African managing partner Rob Wesselo commented: “it has to happen sooner rather than later (a listing of a housing fund.), given that housing is the only sector of the broader SA real estate market where demand outstrips supply, particularly in the R200 000 – R600 000 market.”

(Wesselo) “Blames a lack of performance data from which analysts and fund managers can base profit and earnings forecasts” Financial Mail.  Again the ‘good news’ is that we haveTPNdoing just that, for example:

Tenants in the below R3 000 rental bracket are now the worst performing, with just 72% in good standing, (only 58% are in the Paid on Time category, while 18% are in the Did not Pay category). Unfortunately, tenants in the above R12 000 category are not faring much better with 74% in good standing (57% Paid on Time and 16% in Did not Pay). Tenants in the R3 000 – R7 000 category remain the best performing, where 83% are in good standing (70% Paid on Time and only 8% Did not Pay).

Yet the potential remains for enormous growth, since 68% of South Africa’s total population can afford housing priced between R250 000 and R700 000 according to the Affordable Land & Housing Data Centre. Yet only 14% of all new home registrations in 2010 fell into this category.

Wesslo does admit that rental defaulting and arrears in the affordable housing market are cause for concern among potential investors. “However, if you build the right product and manage your portfolio well, arrears and vacancies can be kept to a minimum” he told the Financial Mail.

But just when you thought it was safe, enter the Consumer Protection Act. Among other things the CPA allows the tenant to terminate a lease, at will, with only 20 business days notice, despite an appropriate penalty.  This leaves the landlord with a cash flow impact as levies and mortgages are owed. Throw in the Municipal Act , – though not done deal, and investors feel weak at the knees.

But Jeffery Wapnick from Premium Properties sees a Pony. Premium Properties owns some 2000 units in inner cityPretoriaandJohannesburg. Wapnick reckons that there are few risks involved with Residential and Retail, and other sectors.  Premium Properties experience has been that the eviction and replacement of Defaulting residential tenants is simpler that corporate ones.

So how far are we to realising a housing focused fund on the JSE? Well that brings us back to Jeff Wapnicks Premium Properties where only 40% of the fund covers residential market. There was the Kwami Residential Fund in late 2010, which Gerald Leissner (CEO of ApexHi Properties) said at the time that he was unable to put together a portfolio of sufficient capacity and liquidity to attract institutional investors.

Are we are just not ripe for such investment.  Or is there a lesson to learn from theUShousing funds. TheUStoo has a market for affordable residential rentals. And despite the economic down turn, Housing Fund Equity Residential, aChicagobased Standard and &Poor 500 member has a market cap of R125bn.  That’s almost the size of  the whole of the SA listed property sector in total.

Regardless, squinting back at some detail:  according to theTPN’s Rental Payment Monitor Q2 2011: the best performing Tenants in Good Standing are in theEastern Capeat 87% (71% Paid On Time, 16% Paid Late) whereasGautengis the worst performing province with only 75% of Tenant in Good Standing.  That could help you see where the manure is. On the other hand (IHS’s) nearly R2Billion SA Workforce Housing Fund has all the potential of listing with it’s offshore private equity investors partnering to develop 35 000 residential units by December 2011. There must be Pony here somewhere.