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City Centre Rents are falling
One of the most significant impacts of the Covid 19 pandemic has been that vast swaths of the working population have had to pack up their desks and shift everything to the home office. During lockdown #1 when it quickly became necessary to work from home, we will all recall reports of the daily battle over prime kitchen table space, as families grappled with the split priorities of home schooling the kids whilst still replying to emails, answering calls, attending meetings (and with it the need to master new Zoom technology) and doing the day job in order to keep the boss happy.
What back in March may have seemed to be a temporary situation, evolved into a semi-permanent or permanent arrangement, with office workers having packed up the desk photos, emptied their drawers of all manner of personal paraphernalia and stationary and have now vacated their cubby holes in city centre office buildings in exchange for the permanent home office. Even when Boris insisted that everyone return to work during the summer months, for tens of thousands the bridge had been crossed and there was no going back. Companies who may have previously been resistant to the idea of a disparate work force, clocking up their hours in their home office, have settled on the idea that this way of doing business works and arguably may have traded off the idea of a perhaps slightly less productive team with the cost savings on renting expensive city centre office space. Even those where a return to the ‘actual’ office is necessary, this is now on a part time basis with workers making the commute for maybe one or two days a week in order to have those face to face meetings. The net result being that companies are slashing the space they previously occupied in vast amounts with many buildings that were previously buzzing with activity, now standing empty.
The commercial property sector is being hit hard and there will no doubt be a rise in repurposing projects – converting redundant office space into residential usage, But what of the city centre residential sector?
As reported in The Times on 16/11/20, rents of homes within big cities are falling by up to 45% as those office workers who once chose to live near their place of work no longer need to. Tenants are understandably shifting their priorities from the time and ease of getting to the office to more lifestyle driven wishes such as proximity to the countryside and having a garden. As Chris Norris of the NRLA says, “if you always rented a small space at a premium in order to be close to work but now no longer need to be in the office, it is a rational choice to get more space a bit further out.” Homes with a dedicated office or spare bedroom, flexible family accommodation and outdoor space have raced up the desirability stakes at the expense of those within easy reach of key transport links or being surrounded by opulent bars and cafes.
Zoopla has also reported that rents in London are lower than this time last year – with a similar picture in Manchester, Birmingham and Edinburgh. The report explains that at the beginning of lockdown #1 there was a shift from short term Airbnb rents to a longer term traditional AST model as tourism fell through the floor. And whilst tourism will undoubtedly return to a degree once the World resumes some kind of normality, the need for rental accommodation in these cities from resident workers seems to have been permanently dampened.
So what does this mean for city centre buy to lets?
I’ve always played down the attractiveness of big city centre developments with hundreds of mono-type apartments and flats as a buy to let investment choice. The trouble with these are that when launched – and often sold off plan – the majority of them were snapped up by investors who would then be competing with one another on rents. They also attracted institutional investment – with a single company buying up en-masse, which I find worrying as they can instantly affect the supply of units in the development available for rent or to buy, pushing down prices for the rest of us. My preference has always been to buy traditional homes – maybe less swanky – that can lend themselves to different markets, not just the single corporate let. Two or three bedroom terraced houses located slightly further out are more likely to have enduring appeal and have more scope for the accommodation within them to be reworked to suit changing lifestyles.
But ultimately it’s about your strategy and buying properties that lend themselves well to this. Buying properties that have the potential to be versatile and ultimately, it’s about having an armoury of strategies up your sleeve.
That’s why I firmly believe in the power of education when it comes to property.
Education that allows you to formulate multiple strategies to support a diverse portfolio, multiple exit strategies for a given project and differing financial strategies that can weather a storm such as the one now being experienced by city centre landlords. Many of the amateur investors that have one or two properties, will be hit hardest at this time and indeed the NRLA are reporting that a quarter of their current members intend to sell at least one property. For some people – that means exiting the investment housing market altogether. Those that survive and thrive will be those that have a range of investments within their portfolio – probably with varying locations too. But to know how to piece together a property plan like this takes expertise and knowledge.
For more information on the property education programmes I have developed alongside Asset Academy, please visit www.martinrobertspropertyeducation.com.