Location, Location, Location
High occupier retention levels in the regions key to delivering income return on property
Stock picking the right buildings in the right locations is key to generating high commercial property tenant retention levels, which in turn leads to strong income returns for investors, says Richard Peacock, co-manager of the Kames Property Income Fund.
The fund, which focuses on smaller lot sizes averaging around £8m, has a geographic bias towards property outside of London. Peacock believes that understanding the occupational dynamics of a location is also a better guide to the sustainability of income than contracted lease length alone.
Figures from the IPD Lease Events Review, which provides analysis of UK leasing activity through real estate investment research, revealed that commercial property tenants who chose to terminate their lease prior to the contractual expiry date was 23% across the UK between 2014 and 2015 (71% chose to remain). In contrast, 88% of the occupiers in properties owned in the Kames UK Property Income Fund have remained since the fund’s launch in March 2014.The analysis from the IPD Lease Events review also showed that retention of occupiers on lease expiry across the UK was 30%. The retention of occupiers on lease expiry in properties owned by the Kames Property Income Fund, however, showed an impressive 70% of rental income being renewed on expiry.
Peacock said: “The high retention levels at both break option and lease expiry in the commercial properties that we own demonstrate the success of our approach to acquiring properties that suit occupier requirements, have committed tenants and offer sustainable income-generation prospects in stable geographical locations. It is also evidence of the effectiveness of our business-plan led approach to managing the portfolio where we actively engage with occupiers to understand their portfolio strategies and requirements and create occupational solutions to suit their needs.
“In addition, we believe that regional properties, where the majority of our investment is focused, evidenced in sites such as Ventana House, Sheffield; The Hive in Manchester and Bridge House, Bristol, will continue to provide a stable income for our investors as the impact of Brexit continues to be realised on London’s commercial property market.”