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RICS: Rising investment demand in UK commercial property higher than before pandemic

Property experts have seen positive movements in investment trends across commercial property during Q4, while owners continue to diversify the way we use office space, the latest RICS Global Commercial Property Monitor has found.

Across all sectors, investment enquiries rose for the fourth successive quarter, leading to capital value expectations rising for the year ahead. The strength of the industrial sector continues to standout, with a net balance of +84% of respondents expecting prime industrial values to increase over the next twelve months. The outlook is also positive for prime office values, as a net balance of +24% of respondents foresee an increase during 2022 (the strongest reading since Q4 2019).

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Looking at the alternative sectors, over 50% of respondents project an uplift in capital value expectations for data centres, multifamily residential and aged care facilities, respectively.

As almost two-fifths of respondents (+39%) believe the market to be in the early phase of an upturn, despite some impact from the latest Covid wave, respondents are more optimistic about the future of the UK commercial property, with owners in the office sector looking at how to attract employees and occupiers back.

As Covid restrictions lifted across the UK last week, 66% of respondents still believe an office is essential for a company to successfully operate. However, 76% of contributors report that they are seeing an increase in demand for more flexible and local workspaces and over two thirds (69%) have reported an increase in space allocation per desk following the pandemic; all highlighting how occupiers are making the office place safe and attractive for employees once more.

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But traditional set ups are changing as 87% of respondents are seeing a re-purposing of office space, with 15% highlighting that this is happening in significant volumes.

Interestingly as UK office space looks to be repurposed, investment enquiries from the UK and overseas slightly increased this quarter.

Growth across the industrial sector continues to intensify with availability of units failing to keep up with demand. This quarter, 61% of respondents saw an increase in the number of enquiries for industrial units whilst -43% reported a decline in availability. This imbalance means that almost two-thirds of respondents anticipate industrial rents rising in the coming three months. Industrials are also the only sector anticipated to see any significant rental and capital value growth over the coming 12 months too.

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The retail sector continues to experience a drop in occupier demand. Whilst investment enquiries also slipped this quarter with -16% of respondents reporting a fall in domestic enquiries and -17% reporting a fall in foreign investment enquiries, this continued negative trend is less pronounced than in 2020. 32% of respondents report that capital value expectations for the year ahead didn’t change in Q4 (in net balance terms). Despite this negative reading the momentum has significantly improved from the onset of the pandemic when 86% of respondents expected them to fall.

Tarrant Parsons, RICS economist, said: “Strength across the UK industrial/logistics market shows no sign of abating, with capital value expectations for the year ahead posting a fresh all-time high across the sector during Q4. Generally speaking, sentiment appears to have largely weathered the uncertainty brought on by the rapid spread of the Omicron variant in recent weeks, although the green shoots of recovery that appeared to be emerging in office tenant demand seem to have been put on hold for now.

“Longer term though, a strong majority of respondents still consider office space in some form to be essential for businesses to operate successfully. That said, it appears more flexible or local spaces are very much in favour which could well prove to be a lasting legacy of the pandemic.”

Source: Scottish Construction Now

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Scottish commercial property set for strong year

THE Scottish commercial property market is set for a surge in activity as pent-up demand from overseas and UK investors makes its way to market in 2022.

Commercial property experts in Glasgow and Edinburgh have hailed high-end opportunities with the return of the office and continuing benefit from warehousing and industrial sites driven by people changing habits and accelerated by the pandemic.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “It has been an interesting year. One of the big themes that has come through has been the resilience within the market.

“Everybody has found a way of working around the challenges of the current pandemic, which is good and will stand us in good stead going forward.”

He added: “There is clearly a huge weight of money that has been amassed and is waiting in the wings to invest into property.

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“We are starting to see that in a number of deals that have come about towards the end of this year.

“I think next year is going to be a very strong year for that reason and I think what we are going to see a continued polarisation of the market really where it is almost like mining for gold.

“You have this little thin strip of the market that is incredibly sought after by a lot of buyers and then once you move out of that it becomes a much quieter marketplace.”

Among the transactions in the Scottish capital, two prime sites in the city’s financial district were sold with long-term tenants intact, including 145 Morrison Street, which is entirely let to Capita until 2030, was acquired for £12 million by Topland and Exchange Place One was sold in an off-market deal.

Mr Steele said: “There continues to be strong demand from UK institutions for long secure income streams. There is lots of money seeking after that, that old story of industrial accommodation just continues to get stronger and stronger with the kind of change in people’s shopping habits that was accelerated by the whole Covid pandemic has continued apace and there is just an insatiable demand for industrial investments from UK and overseas investors and I think that is definitely going to continue.”

An industrial shed in Lanarkshire, let to the Swedish commercial vehicle manufacturer Scania, was sold for around £11m last month.

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“UK institutions for example are all driven by benchmarks so they tend to be relatively comfortable with buying what everyone else is buying, because they are judged against benchmarks and ratings but if you are a private equity investor you want to see value and it is very difficult to see value in the market where everyone else is trying to buy, so I think we’ll see some changes and I think one of the things that there could be a lot of interest an activity in is offices.

“Of course if you look at the pricing to the yields in those markets compared to a lot of Europe they are good value

“So I think there will continue to be a lot of overseas interest in offices in both Edinburgh and Glasgow next year,” said Mr Steele.

Glasgow’s largest single office block at 177 Bothwell Street is set for its official opening in January which comes with the entire building already let.

Its tenants include Transport Scotland, which is moving its headquarters there, AECOM, Virgin Money, and PNB Paribas, one of the world’s largest banking groups.

Stephen Lewis, managing director of HFD Property Group, said: “As I had predicted about March last year, whilst I expected the demand for office space to reduce by about 15-20% overall, that demand would be more acutely felt at the Grade B end of the space and it would be a flight to quality and that has been borne out.

“It is probably still a bit early to talk about whether it has been 15-20% in terms of overall reduction in take-up but there is definitely a flight to quality and that is borne out by the fact our building has let up so strongly during that pandemic.

“That is as much about wellness, sustainability, Covid proofing buildings, smart tech, all these things are what is driving occupiers.

“The question occupiers are asking is what do we need to do ton attract our staff back to the office, so it is creating spaces that staff want to attend.

“The wider take-up figures in Glasgow are pretty strong, buoyed by 177 but in general take-up is stronger than the market had predicted at the start of the year and that partly reflects the fact the economy has held up well, employment levels have held up well and productivity generally has been okay.”

He added: “Out of town in business parks, occupation is rebounding back to pre-Covid levels and again demand for quality space is there, flexibility in some cases.

“That is helped by those who want to look at not just public transport connectivity but also car-born and business that don’t have to be located in the city centre are often happy to take space in out of town business parks because that fits the model so that has held up and been resilient.”

By Brian Donnelly

Source: Herald Scotland

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Scotland’s commercial property market on ‘road to recovery’ after investment rebound

Scotland’s commercial property market has begun its “road to recovery” thanks to strong investor appetite for industrial and retail warehousing assets, new figures reveal.

Research by global property consultancy Knight Frank found that £1.2 billion has been invested in Scottish commercial property in the first three quarters of 2021, up by almost 21 per cent on the equivalent period last year as the sector rebounds from the pandemic.

By way of comparison, investors spent nearly £1.7bn during the same nine-month period in 2019, prior to the Covid crisis.

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The latest research shows that overseas investors remained the most active buyers of commercial property assets in Scotland, accounting for just over £500 million of overall volumes. Private property companies represented a further £322m, equivalent to just over one-quarter of total investment.

Property experts said industrial and retail warehousing assets had been the stand-out investment performers in 2021, with volumes outpacing the equivalent periods in both 2019 and 2020.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Our figures suggest that Scotland is edging closer towards the level of activity we saw prior to the Covid-19 pandemic.

“While there is still some way to go, the economy was locked down for much of the first half of the year and there has been a noticeable upturn in investor sentiment since the start of the summer.

“Industrials and retail warehousing have seen the clearest upturn in activity, with investment volumes more or less doubling in both markets.

“Prime offices remain in high demand and, although investment volumes in offices are still some way off where they were in 2019, we expect to see more activity in this sector towards the end of the year and into 2022.”

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He added: “There is a weight of money looking to be invested and good quality stock coming onto the market. We expect that to drive deal activity in the final quarter of the year and, with that, we could begin to see prime yields fall – as has already been the case with some recent deals in Edinburgh.”

The industrial sector attracted £259m of investment in the first nine months of 2021, more than double 2019’s £109m and 2020’s £112m. Retail warehousing accounted for £232m in the first three quarters of 2021, compared to £213m and £117m in 2019 and 2020.

Meanwhile, offices saw £293m worth of deals in the nine months to the end of September, up on £240m during the same period last year, but still below the £575m transacted in 2019.

Investment volumes in leisure property – such as restaurants and cafes – was just £27m, marginally up on the £20m registered last year, but significantly down on 2019’s £135m.

A report earlier this week suggested that office occupier markets in Edinburgh, Glasgow and Aberdeen were in recovery mode.

Take-up for the Glasgow office market totalled 289,209 square feet in the third quarter, the highest quarterly total since before the first pandemic-related lockdown, according to a report by property advisor CBRE.

By Scott Reid

Source: The Scotsman

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Commercial property trounces residential for rental yields

Commercial property offers significantly higher yields than residential, though the latter is far more popular with investors, analysis by London lettings and estate agent Benham and Reeves has found.

Across the UK commercial property investment offers average annual yields of 10.7%, compared to just 3.4% for residential.

The best commercial property yields are found in Scotland (20.4%), the South West (13.7%) and Yorkshire and the Humber (12.9%), with the best residential yields being in Scotland (4.4%) and the North West (4.3%).

When it comes to the initial cost of investing, the average residential property requires a lower budget of £259,850. With an average value of £454,384, a commercial investment requires a budget 75% larger.

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Marc von Grundherr, director of Benham and Reeves, said: “It’s fair to say that both the residential and commercial markets have been impacted by the pandemic and so it’s hard for investors to know where to put their money at present. But tough times can also bring great opportunity and with the country now reopening from both a professional and social standpoint, both sectors are set to see a return to health over the coming months.

“There are a plethora of factors to consider from your initial investment level, which sector to choose and the ongoing requirements, capital gains potential, as well as the regional disparities across these sectors in each region of the UK.

“While a commercial investment may offer a higher yield, the recovery timeline as a result of the pandemic is set to stretch on far longer than that of the residential rental market and residential property investment remains by far the dominant force where availability, affordability and total sector value is concerned.

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“However, commercial investment can provide a more hands-off approach for those doing so through a third-party platform, while the amateur buy-to-let landlord is sure to spend more time sorting out tenant issues and so on.

“The best approach is a balanced portfolio and one that considers the pros and cons of each market from both a residential and commercial standpoint.”

Despite the gap between the returns offered for residential and commercial, the residential market is far bigger, with 541,966 listings versus just 12,022 across the commercial space.

The value is also higher, worth an estimated £251.5bn, while the commercial market comes in at almost £9bn in value.

Source: Property Industry Eye

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Commercial property shows signs of recovery this year

More than half of respondents agree conditions are consistent with an upturn, according to the Royal Institution of Chartered Surveyors, RICS’ latest commercial property market survey. In the second quarter, 56 percent of survey participants predicted a recovery compared with 38 percent of respondents from January to March.

Chief economist Simon Rubinsohn said: “Demand trends appear much more stable in the office sector relative to recent quarters, while the industrial sector continues to see sharp growth in interest from both occupiers and investors.”

A net balance of 16 percent of the 506 survey participants reported a pick-up in occupier demand during the first three months of 2021 – the strongest aggregate demand since 2016. This was dominated by industrial demand at 63 percent with retail and offices still reporting negative demand at 25 and 3 percent respectively.

Respondents continued to cite a sharp contraction in the availability of leasable industrial space, with the net balance slipping deeper into negative territory at minus 48 percent.

Prime office rents display marginally negative expectations for the year to come at minus one percent with secondary office rents anticipated to fall by four percent over the next year. Retail rents are envisaged to decline sharply, with expectations of a drop of 5.5 percent for prime and 8 percent for secondary.

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Industrial rents forecast to rise

But prime industrial rents are anticipated to climb five percent, while expectations are also firmly positive for secondary industrial rents at three percent growth.

“When viewed at the regional level, industrial rental growth expectations remain robust in all parts of the UK, with retail rents still projected to decline across the board,” said Mr Rubinsohn.

“Demand trends appear much more stable in the office sector”

“Interestingly, central London prime office market now displays stable rental growth expectations, marking a significant turnaround from the deeply negative assessment returned over recent quarters.”

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Survey respondents predicted a flat 12 months for prime offices in Scotland, the West Midlands, East Anglia and the Northeast. Secondary office rents are anticipated to decline further across all parts of the UK over the next year.

A net balance of 15 percent of contributors reported an increase in property investment inquiries led by the industrial sector at 64 percent with offices and retail in negative territory.

Capital values were predicted to rise for less mainstream sectors such as multifamily residential properties, data centres and aged care facilities. Student housing was also forecast to move out of negative capital value territory to neutral in the next year.

By Jayne Smith

Source: Workplace Insight

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Scottish commercial property investment up a third

Investment in Scottish commercial property increased by more than one-third (35%) compared to the same period last year during the first six months of 2021 as the market continued its recovery from the pandemic, according to analysis from Knight Frank.

The independent commercial property consultancy found there were £688 million worth of deals between January and June 2021, compared to £510 million during the first half of 2020 – the height of the UK’s first lockdown.

Investment fell marginally between the first and second quarters of 2021, from £371 million to £317 million (15%). However, this does not include deals with undisclosed values, such as the sale of Neptune Energy’s Aberdeen headquarters in May – the biggest investment deal in the city since the pandemic began.

Overseas investors have remained the biggest buyers of Scottish commercial property so far in 2021, making acquisitions totalling more than £300 million. Privately held property companies were involved in £115 million of deals, while UK institutions accounted for another £60 million.

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Alternatives and mixed-use schemes were the most popular asset classes in terms of investment volumes – including the £80 million of funding for Moda’s Holland Park build-to-rent development in Glasgow – followed by offices and industrials. Knight Frank predicted that, with a range of high-quality stock still being marketed, a flurry of deals could complete after the summer.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Scotland’s commercial property investment market is still recovering from the effects of the pandemic, but there are signs we are heading in the right direction as the economy re-opens. The biggest investment transaction in Aberdeen since the pandemic began is indicative of the fact that significant deals are beginning to conclude and, all things being equal, we should see more after the summer break.

“While alternatives and mixed-use schemes has been an active sector over the past year or so – particularly in the build-to-rent market – another notable trend has been the hardening of yields for retail warehousing. With more investors looking for exposure to these assets, we expect the trend for good quality retail warehousing to continue, while offices should gain momentum in the second half of the year as the occupier market recovers and overseas inspections are allowed once again.

“There is a great deal of interest in what Scotland has to offer, with comparatively strong fundamentals. Commercial property remains an attractive source of secure long-term income, which is still a precious commodity for investors.”

By Brian Donnelly

Source: Herald Scotland

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Commercial property market growth prediction

The commercial property market could see returns grow by 6.4 per cent in 2021, real estate firm Colliers predicts.

The growth would be made up of 4.8% income return and 1.6% capital growth.

This follows a 2.3% decline in all property total returns in 2020. The firm says industrial and supermarket assets will be the most popular with investors in its latest Real Estate Investment Forecasts report.

Oliver Kolodseike, deputy chief economist at Colliers, said: “Latest business and consumer confidence survey data suggest that the economy will bounce back strongly in Q2. This is heightened by consumer confidence rising to its highest level since before the start of the pandemic, adding to hopes that the consumer sector will help drive the economic recovery.

“Mild rental growth will result in a slight reduction in yields in the short term, but we expect yields to then generally shift out in line with the trends for the Bank of England Bank Rate and 10-year government bond yields.”

Colliers predicts that over the five-year forecast, industrial and supermarkets will be the best performing sectors.

All retail total returns are expected to show marginal growth of 0.6% this year, having suffered a 12.4% decline in 2020.

The office sector has also been going through structural change with lease lengths shortening according to Colliers.

While the proportion of deals signed with lease commitments in excess of three years averaged out at 77% between 2016-2019, in 2020 the equivalent number was down to just 53%.

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Colliers expects all industrial yields to stand at 4.73%. Going forward, the firm predicts a stabilisation in 2022 and very mild outward shifts thereafter.

Given the ongoing strength of rental growth, all industrial total returns will show growth of 16.1% this year, the firm says, before slowing to a more sustainable rate of 5.4% in 2022.

John Knowles, head of National Capital Markets at Colliers, added: “It is particularly hard to forecast across all sectors over the next six months, however it does seem that industrial will continue to benefit from a demand driven market, much as it has done over the last 18 months. I have high hopes for the office sector, as confidence returns as people start to occupy their workplace again and business travel should open up to some extent over the next couple of months.”

Source: Punchline

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Commercial Finance – Business Interruption Loans and COVID

How COVID-19 Has Impacted Commercial Finance

The COVID-19 pandemic has left a lasting impact on many aspects of life, from restrictions on social lives, to businesses going into administration. Even though the UK economy is now experiencing a period of positive growth, mainly due to the pace of the vaccination programme, the financial impact of the pandemic is still very visible.

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Shortly after the first lockdown restrictions came into place, lenders were quick to tighten their lending criteria, to try and protect themselves from the expected risk of higher unemployment levels and people struggling to pay off mortgages and loans.

Commercial finance was affected in a similar way, with so many businesses being forced to close during lockdown, the commercial finance landscape lurched into unknown territory.

Many businesses were provided with financial support in the form of furloughing, business interruption loans and bounce back loans but others were unable to apply for these. Some lenders offered holiday payments for commercial finance, so there were numerous financial support options in place to try and help struggling businesses survive the pandemic.

Commercial Mortgages UK Adverse Credit and BTL

As an independent UK Commercial Mortgage Broker we carefully examine all the Buy-to-Let mortgage offers from leading whole of market lenders across the UK. You will benefit from low interest rates, lenient eligibility criteria and a simplified procedure. You also have the choice of Second Charge Mortgages, Adverse Credit Mortgages for individuals with crediting challenges, to straightforward Residential Mortgages for your own home.

With the reassurance of attractive Mortgage Protection Insurancee options, we also offer specialist mortgage broker services such as self-employed Contractor Mortgages, Expat Mortgages, home loans and Sharia Mortgages, to commercial Serviced Accommodation Finance from holiday homes to Property Investors, Developers and existing Homeowners.

Business Loan Applications – UK’s Changing Priorities

The priority for the government was to assist existing businesses, rather than helping new businesses to launch, which was highlighted by the financial support options that were made available. Startup loans were still available from some lenders but it was now harder for many would-be entrepreneurs to access loans.

In the UK, many people use startup business loans to buy the equipment and pay for other essentials when they start up a business. With the economic downturn, many lenders have withdrawn products from the market and tighter lending criteria was applied.

However, the Bank of England cut interest rates down to 0.1% which meant that some of the new business loan interest rates have been more attractive for startup business owners, but there is a more comprehensive set of lending criteria to enable lenders to manage risk in the unstable climate.

COVID Government finance support schemes for businesses

To assist existing businesses who had been adversely affected by coronavirus, the government introduced the following schemes to support cashflow during this challenging period:

Interest-Free Business and Commercial Loans

Coronavirus Business Interruption Loan Scheme (CBILS)

SME businesses have been able to access business interruption loans for lost revenue and cashflow disruptions. The CBILS was also made available to businesses whose growth requirement could not be supported under standard bank lending criteria. Under the scheme, businesses who had been adversely affected by the pandemic could apply for loans of up to £5million.

The first 12 months of the loan is interest-free and the interest rates after a year for the CBILS scheme were set by the lenders. Some lenders provided the loans with an interest rate as low as 1.4%, while at the higher end of the scale, some lenders were offering the loans with a 8.9% interest rate. Terms were available for up to 10 years.

To encourage more lending, the government also guaranteed loan repayments, with the borrower being fully liable for the debt.

Lenders were able to provide the following finance under the CBILS scheme:

  • Term loans
  • Overdrafts
  • Invoice finance
  • Asset finance

Bounce Back Loan Scheme (BBLS) SME and Sole Trader Businesses

The Bounce Back Loan was aimed to support smaller businesses and sole traders, to provide them quick access to financial support. The scheme allowed businesses to borrow between £2,000 and up to 25% of their turnover (to a maximum of £50,000). For the first 12 months, there is no interest to pay and following that first year a rate of 2.5% would be applied.

The maximum loan length for the BBLS was six years and this scheme also came with a guarantee to the lender from the government for the repayment, with the borrower remaining liable for the debt.

Pay As You Grow (PAYG) Business Support

For businesses who took out the BBLS, the option for PAYG was later introduced to provide further support, allowing:

  • An extension of the loan term from six years up to 10 years, remaining at 2.5% interest rate.
  • Reduction of monthly payments by paying interest-only for six months. This could be requested up to three times throughout the term of the loan.
  • A repayment holiday of up to six months, which was only available once during the term.

Other financial support provided to businesses included:

Job Retention Scheme – Paid in the form of grants to pay 80% of the salaries of furloughed employees.

New Restart Grants – A one-off cash grant of up to £18,000 for businesses re-opening from April 2021, including pubs, hotels, restaurants, gyms, salons and clubs.

Business Rates Holidays – Business rates were cancelled for all retail, leisure and hospitality businesses for the tax year 2020-21 and up to June 2021, with a discounted rate for the remainder of the tax year.

Recovery Loan Scheme – This has replaced the BBLS and allows businesses to apply for between £25,000 and £10m. The government has given lenders an 80% guarantee for these loan repayments.

There have also been other schemes for different types of businesses, some made available through local authorities.

Commercial Finance Landscape Has Changed – Conclusion

COVID-19 has completely changed the landscape for commercial finance, particularly as the government has been compelled to step in to help save businesses from closure or building up unmanageable debts.

Lenders have been able to provide loans under the schemes with the security of knowing that the repayments are guaranteed by the government, which has helped them to continue providing finance to businesses when the risk to them is extremely high.

The success of the UK vaccination programme has already had a significant impact on economic recovery in the UK and the combination of this, along with the support that the government has provided will certainly have saved many businesses which otherwise would have gone into administration.

Experts are predicting that over the next few years should hopefully see a shift back towards the type of commercial finance products that were available pre-COVID, albeit with stricter lending criteria until we see a full economic recovery.

Commercial Finance Network is a specialist Commercial Finance Broker offering all types of commercial finance to SMEs along with individual investors. Get in touch today via either our Contact Form or call us on 03303 112 646.

Commercial Business Finance – The Rise of AI In The Banking and Lending Circles

June, 2017 archives: “Artificial intelligence can help people make faster, better, and cheaper decisions. But you have to be willing to collaborate with the machine, and not just treat it as either a servant or an overlord,” says Anand Rao, PwC Innovation Lead, Analytics.

The quote neatly sums up our relationship with AI technology. Although we appreciate its potential, we feel edgy about its power and possibilities. However, despite this, it’s pervading our lives as consumers, whether we like it or not. Every time we receive a marketing email or product recommendation, we can be sure the algorithms have been at work and we are far from the random target.

Despite its image of being cautious and conservative, the banking industry as a whole appears to have had few qualms about adopting the technology – and it seems that, as consumers, we are happy with this. A mammoth survey of around 33,000 consumers by Accenture found that more than 70 percent of us would be willing to receive computer-generated banking advice. “Automated servicing can be the sole source of data from some customers, even when making complex decisions around products,” says the report.

One of the main uses of AI so far has been in customer service. Chatbots are becoming the de facto alternative to banking apps. This use AI to simulate conversion through written or spoken text. Just as Amazon has humanised its digital assistant by calling it Alexa, so has the Nordic banking group Swedbank created ‘Nina’. This chatbot is clearly popular; within three months of being deployed, Nina was averaging around 30,000 conversations per month.

However, this is the sharp end of AI – the human/machine interface mainly used in the consumer-facing world of retail banks. But how does – or will – AI play out in a commercial finance environment?

The business sector is understandably more cautious, prudent perhaps, about adopting new technologies until they have matured. But as millennials take up more senior roles in the commercial banking world, they will be increasingly pushing for the rich functionality they know as consumers to also be integrated into their working environment.

Today, we are seeing signs that adoption rates of AI-based technology are set to take off in business banking too. More and more banks are borrowing retail banking experience to build out their commercial and business strategies. But while the focus of its use in the retail banking world has mainly been for customer service and sales applications, in commercial banking, use cases (initially at least) are likely to be more around streamlining operational processes.

In a sense, AI as it stands today, in this environment is all about automation, about making processes faster and more efficient. And there are a raft of applications here where automation is having a hugely positive impact.

Take the introduction of digital expenses platforms and integrated payments tools, both of which have the potential to significantly improve a business’s approach to how it manages cash flow. By having an immediate oversight, through live reporting of all spending from business cards and invoice payments, as well as balances and credit limits across departments and individuals, businesses can foresee potential problems more quickly and react accordingly. All these services become even more powerful when combined with technologies like machine learning, data analytics and task automation.

We are already seeing growing instances of AI and automation being used to streamline payment processes in banks. Cards can be cancelled or at least suspended quickly and easily and without the need to contact the issuing bank, while invoices can also be automated, to streamline business payments. This means businesses can effectively keep hold of money longer and at the same time pay creditors more quickly. Moving beyond straightforward invoice processing, intelligent payment systems can be deployed to maximise this use of company credit lines automatically.

Looking ahead, we see a string of applications for AI in the payments management field around analysing data with the end objective of spotting anomalies in it. With the short and frequent batches of payments data used within most enterprises today, it is unlikely that even the best-trained administrator would be able to spot transactions that were out of the normal pattern. The latest AI technology could be used here to tease out anomalies and pinpoint unusual patterns or trends in spending that could then be investigated and addressed.

While this area remains in its infancy within the banking and financial services sector, with technology advancing, financial services organisations and the enterprise customers they deal with will in the future will be well placed to make active use of AI that will help clients track not just what they have been spending historically but also to predict what they are likely to spend in the future. AI will ultimately enable businesses to move from reactive historical reporting to proactive anticipation of likely future trends.

Source: Russell Bennett, chief technology officer, Fraedom

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UK Commercial Property confident after a tough year

UK Commercial Property reported a year-end net asset value of £1.1bn in its final results on Friday, representing a negative total net asset value return in the year of -0.9%, as valuations came under pressure amid the Covid-19 pandemic.

The FTSE 250 real estate investment trust noted that over the longer term, it had delivered a 10-year net asset value total return of 85.6%, compared to the Association of Investment Companies (AIC) peer group’s 32.4%.

It reported EPRA earnings per share of 2.71p for the year ended 31 December, down from 3.50p year-on-year, as earnings were impacted by bad debt provisions and sales made in the year, resulting in reduced income.

The company’s total share price return was negative at -19.7%, swinging from a positive return of 11.3% in 2019, as the share prices of most diversified real estate investment trusts fell due to negative sentiment associated with the coronavirus crisis.

As at year-end on 31 December, the company’s discount to the last published net asset value was 16.7%, which the board said was in line with other diversified REITs.

The company said its net gearing was low at 6.4%, compared to 14.7% a year earlier, which it said remained one of the lowest in its peer group and the wider REIT sector, with the AIC sector average standing at 31%.

Its financial resources stood at £218m at year-end, up from £130m year-on-year, which was further boosted by sales in the first quarter of 2021, resulting in it having £276m to invest into its portfolio and enhance earnings.

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In order to comply with the REIT rules, the board announced that shareholders would also receive a further interim dividend for 2020 of 0.531p, which would be paid on 21 May to shareholders on the register as at 7 May.

Looking at its portfolio, UK Commercial Property said it produced a positive total return of 1.1% for the year, down from 1.4% in the prior year but still “significantly outperforming” the -0.9% from the MSCI benchmark, as its portfolio weightings provided a tail wind to relative performance.

Rent collection stood at 83% for the year, compared to the 77% it reported at the half-year and 97% for the whole of 2019, as rent collection rates continued to increase as the year progressed.

It made £74m of acquisitions during 2020, with funding of two student accommodation assets in Exeter and Edinburgh as well as the acquisition of an Asda store in Torquay.

The board said those assets would generate secure income as it built a “modern economy portfolio”.

UK Commercial Propety’s occupancy rate improved to 93.5% from 92.1% over the year, despite the pandemic, as successful letting activity – particularly at XDock 77 in Lutterworth – resulted in higher occupancy levels.

The board said that also compared favourably to the MSCI benchmark occupancy rate of 92.6%.

Its industrial weighting was 58%, compared to the benchmark of 30%, and its retail weighting stood at 17%, compared to the benchmark of 25%.

The board said the company’s portfolio was “well-aligned” to an industrial sector that was forecast to outperform, and underweight to the retail sector as a result of several sales in the year.

“A key focus over the past year has been to work in partnership with our tenants to find mutually acceptable solutions to rent collection and I am pleased that UKCM, with its strong focus on environmental, social and governance (ESG) matters, has managed to do this with our occupiers across the portfolio,” said chairman Ken McCullagh.

“We have maintained dividend payments and we see potential for dividend growth in the short to medium term.

“There has also been good progress in selling assets in line with our strategy, further and selectively reducing retail exposure, and investing in assets fit for a diversified modern economy portfolio with an intentionally strong weighting to the industrial and logistics market.”

McCullagh said the last year had resulted in “profound changes” to the way businesses operate, and how individuals live their lives.

“Although there is much speculation over the future of the office sector, for example, as businesses adjust to hybrid working practices, UKCM is in a strong position and the success of the vaccine rollout thus far should provide confidence that businesses can reopen and rebuild.

“The portfolio that has been put in place over the last few years has enabled the company to weather the current difficult situation and emerge in a position of relative strength to create additional value in the future.”

At 0902 BST, shares in UK Commercial Property REIT were down 0.55% at 75.68p.

Source: ShareCast

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Scottish commercial property investment volumes pick up during Q3

Investment volumes in Scottish commercial property staged a recovery between July and September 2020, buoyed by the best third quarter for office deals in five years, according to analysis from two separate reports.

Analysis from Knight Frank found that the COVID-19 pandemic saw investment levels drop to record lows in Q2 2020, following the introduction of lockdown restrictions and, subsequently, the attachment of material valuation uncertainty clauses to commercial property assets.

However, as the economy began to re-open a number of significant deals concluded between July and September, totalling around £400 million – just shy of the Q3 five-year average of £405m. Investment in offices during the three months hit £218m, against an average of £116m for the same period in the past half-decade.

The biggest deal of the quarter was Roebuck Asset Management and Hyundai Asset Management’s £133m acquisition of Aegon’s Edinburgh headquarters during July.

In Glasgow, there were several deals including Singapore-based Elite Partners Capital’s purchase of 150 Broomielaw for around £40m, while the Guildhall building on Queen Street changed hands for around £30m.

The third quarter also saw the completion of Scotland’s biggest-ever logistics property deal, with the acquisition of Amazon’s main Scottish fulfilment centre near Dunfermline by Knight Frank Investment Management, on behalf of a Korean investor.

Euan Kelly, capital markets partner at Knight Frank, said: “The deals that concluded in Q3 underline the trends we’ve seen take hold over the course of 2020 – a flight to quality assets in prime locations, let to strong covenants. The sale of the Amazon fulfilment centre in Dunfermline also highlights the growing appetite for industrial and logistics property that has emerged since the beginning of the COVID-19 pandemic.

“It is not all doom and gloom – however, the devil is very much in the detail behind the headline figures. If you have a multi-let industrial site, well-placed logistics shed, or a high-quality office building there will likely be a great deal of demand for that type of product. In that respect, property is reflecting what is happening elsewhere in the economy, with the strong getting stronger and vice versa.

“We are still in a continually evolving situation, but there are reasons for cautious optimism. The lifting of material valuation uncertainty clauses will help bring a level of certainty to the commercial property market – some deals cannot be financed when they are attached to an asset valuation – and there is a weight of money looking to be deployed in the right type of investments.

“In a world where there is little in the way of certainty, investors have an insatiable appetite for secure, long-term sources of income – and quality commercial property is in a great position to provide that.”

Meanwhile, a Q3 Scotland snapshot from Colliers International predicted a strong finish to 2020 for commercial property investment.

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Volumes in Q3 represented the highest quarterly figure in a year. While this was still almost 20% below the five-year quarterly average of £564m, Colliers said there is hope for a strong end to the year with pent-up demand driving activity.

Oliver Kolodseike, associate director, Research and Forecasting, at Colliers International, said: “It is positive to see that transactional volumes have started to pick up again and we are now expecting a strong end to the year in Scotland as we recover from the ‘COVID quarter’. An annual investment total of £1.5 billion across all sectors would be a positive result given the nationwide lockdown earlier in the year.”

Colliers’ analysis found that the office and alternative sectors accounted for three quarters of all activity by value, while investment volumes in the industrial sector were 40% above its five-year quarterly average. Unsurprisingly, given the ongoing impact of the pandemic, activity in the retail segment was limited.

There was a renewed interest in Scotland from Asia-Pac investors, accounting for over half of all investment volumes. This included the quarter’s largest deal which saw South Korean Hyundai Asset Management purchase 1-3 Lochside Crescent in Edinburgh for £133.25m. The 247,500 sq ft asset is currently let to insurance group Aegon. This is Hyundai Asset Management’s second Edinburgh purchase in less than 18 months, having already bought Gyle Square in April 2019 for £55m in one of Scotland’s other largest office deals that year.

Looking in more detail at investment in the office sector, performance was relatively strong in Q3 after no notable deals were recorded in the previous three months. A total of £186m was invested during Q3, only slightly weaker than the £196m transacted a year ago and marginally below the five-year quarterly average of £193m. In one of Scotland’s other largest office deals this year, Singaporean Elite Partners Capital bought 150 Broomielaw, the 97,000 sq ft building completely let to Scottish Enterprise, for £40m.

Industrial investment activity picked up during Q3, with volumes reaching £80m, 40% above the five-year quarterly average of £56m. The figure was boosted significantly by the sale of Amazon’s 1,023,000 sq ft logistics centre to Korean-based KB Securities for £66.8m, representing the second-largest industrial deal ever recorded in Scotland. In Glasgow, Stenprop acquired two separate units in Glasgow for a combined £10.7m. St Andrews Industrial Estate, covering 73,200 sq ft, sold for £5.5m, while Excelsior Industrial Estate, occupying 61,000 sq ft, went for £5.2m.

Patrick Ford, director, National Capital Markets, Colliers International in Glasgow, said: “It was good to see this relatively strong investment performance in the industrial sector in Scotland’s two biggest cities in Q3. Overseas investors, particularly those located in Asia, remain very interested in the Scottish industrial sector and large deals continue to be done, despite global economic uncertainty on the back of COVID.”

In Glasgow, the move to bring more residential properties back to the city centre continued. The third quarter’s largest deal saw Legal & General UK BTR forward funding an £81.5m mixed-use regeneration scheme in Candleriggs Square which will include 364 build-to-rent units.

Patrick Ford added: “There is a push towards a more mixed-use environment in city centres, particularly in Glasgow and this is reflected in the scale of investment in the city in Q3. This trend will be accelerated by the impact of COVID which is likely to see people work from home, at least part of the week, for the long term. This will change the nature of the office environment and the make-up of city centres.”

Oliver Kolodseike concluded: “In line with the wider global economy, Scotland’s GDP will take a substantial hit this year. The pace and magnitude of the economic recovery will depend on the lockdown exit strategy, the oil price trajectory and Brexit deal negotiations.”

By Euan Kelly

Source: Scottish Construction Now

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