Clouds on the horizon
We have just recently managed to rent a couple of properties in central London, that too only with very aggressive marketing. They were hard work to rent out, even when priced more than 30% below what they would have achieved pre lockdown.
One property is in Mayfair and the other in Marylebone. Both properties are not only in solid locations, but they are within the most desirable streets within these locations. Therefore, out of the selection of the properties within this location these should fair relatively better than the rest.
It’s easy to see the rental market in these locations is sluggish. A large segment of the demand for rental properties in central London comes from foreigners, students, and office workers.
These have been absent, or at least severely diminished due to obvious reasons. These reasons in my opinion will not go away for a while, despite assurance from those in authority. I believe this lockdown will be enforced again; therefore, it’s prudent to prepare for the worst.
Properties in the outskirts are faring much better in comparison. Again, if we analyse the tenants, they have more bread and butter types of jobs, such as key workers, builders etc.; work which is still going on despite the lockdown. Therefore, the rents are still continuing to flow in at the original rates.
Any property investment should be considered with the customer in mind; and the tenant is your customer. In accordance with this, our focus has shifted to the outskirts of London. Properties which attract even social housing tenants are now back in vogue. After all they don’t have a job to lose.
Our focus is all around the clock, in any direction. We follow the money of course, but are currently targeting bread and butter type deals, focusing on the rentability of the investment.
One layer of comfort for the landlord, which is underused, is an insurance policy which protects the landlord from non-payment of rent. This is invaluable in the current climate. Not only does the policy kick in after two months of non-payment of rent, it also covers legal costs for eviction and has an element of void period cover as well.
I suspect the premiums for this cover will increase in time, as the claim numbers increase; which, in my opinion are highly likely to do. Therefore, there is a window open now to get the cover whilst the premiums are relatively cheap.
Even in regards to the commercial sector, traditionally seen as more bullet proof than the residential segment, things are not as they seem. Big commercial tenants have a few tricks up their sleeves, and have the money and the expertise available to renegade on rents. The bottom line is if there are no feet on the streets and customers coming in, at some point the rent will be affected. Commercial tenants seemingly look like good covenants, however, many have applied for CVAs and there’s not a lot landlords can do about this. Also, many of these tenants when signing the lease use a separate company, and not the trading company for the lease agreement. So, if push comes to shove the trading business is still protected.
I have heard it said that a Mom & Pop’s business with the security of a PG can be far better security than a corporate tenant.