At a glance
- Keeping on top of latest market trends and developments can go a long way to protecting the value of a portfolio
- Insurance considerations for building valuations
- Zurich offers a range of support to help brokers and their customers in assessing the value of portfolios
For real estate investors and landlords, gaining an insight into where particular property hotspots are likely to develop can be of real benefit to improving the value of their portfolios, and – equally as important – attracting and retaining tenants.
Recent commercial property trends include a reversal of the 1990s out-of-town business park model to one where prime city centre locations are now desired, to the rise of new tenant sectors, such as technology and new media.
From a residential perspective, the largest real estate asset class by value, which is beginning to attract significant institutional investment, there is more of a move towards the rented model as soaring house prices – particularly in London and the south east – are forcing many people to rent rather than buy.
A more relaxed planning environment, which is allowing the conversion of offices to residential, has also gained pace. Allied to this, in the past decade or so, there has also been a real shift in people living and working in the same area. The east end of London, where telecoms, media and technology sectors thrive, is an example of this.
In PwC’s Emerging Trends in Real Estate Europe 2014 report, outside of the traditional prime property locations, such as London which is currently awash with foreign investment, there is still value to be found in seeking assets in fast-growing secondary locations either on the fringes of the city centre or in larger regional cities.
The report also suggests that Generation Y – people born in the 1980s and 90s – have different expectations and lifestyles to their elders, preferring to rent in urban cores or ‘urban-light’ suburbs that offer good transport links and a social hub.
“Tenants are now more interested in a work-life balance and city amenities and as these areas become more attractive, it will drive up the value,” said Ian Parker, Real Estate Business Manager for Zurich.
In addition, the PwC analysis says that tenants will start to toughen their stance on sustainability in the future, leaving many buildings falling short on green credentials and becoming ultimately obsolete. This again will have an impact on value.
Legislation, such as the Energy Act 2011, is set to force landlords and managers of properties to up their game on energy efficiency. They have until 2018 to meet prescribed levels of energy efficiency, otherwise properties will not be able to be rented out to tenants.
“Properties could quickly start to lose their attractiveness to tenants if the buildings fail to meet energy targets, with impact on value as a direct consequence,” said Ian.
Before the post-financial crisis lull in house building, the property boom in the early part of the millennium led to a rapid increase in stock.
Cost valuations on properties can be surprisingly unreliable. Zurich advises, every three years, for real estate investors and landlords to make sure that their building sums insured remain at the correct levels, otherwise they risk major underinsurance problems should a claim arise or they could be paying far more than they need to.
Therefore, in real estate it is not only about choosing the right assets and managing them well, but also understanding what drives the market – such as demographics, regulation, new technology and changing lifestyles.
Real estate investors must make sure they are looking at their portfolios to not only establish the age and performance of those buildings from an energy point of view, but also the attractiveness of those buildings potentially when the lease falls due
Ian Parker, Real Estate Business Manager for Zurich
“Real estate investors must make sure they are looking at their portfolios to not only establish the age and performance of those buildings from an energy point of view, but also the attractiveness of those buildings potentially when the lease falls due,” said Ian.
“If they have properties that are trending to becoming obsolete because of either the economy, legislation or from an energy perspective, that will translate into a negative impact on their portfolio value.”
Zurich offers a range of support, including in the form of Gleeds – which provides professional valuations of buildings – to help brokers and their customers in assessing their real estate portfolios.