Embracing Change: Knight Frank’s new approach to uncover buy-side opportunities
“Technology is constantly evolving and to remain competitive so must we”
4 mins to read
It is no surprise that developments in the field of Geographical Information Systems and Spatial Data are of great interest to the real estate industry. However, it has been slow in adopting new technologies compared to early adaptors like the public sector or the insurance industry.
Whilst technology can improve efficiency, people continue to have a desire for human contact. This is especially true in a sector that is underpinned by trust and personal relationships. At Knight Frank we look to combine new data solutions with up-to-date market knowledge and long standing relationships to bring best in class advice to clients.
Structural Change & Change of Use
Whether you read the headlines, our Knight Frank retail research or have recently been shopping you will be well aware that the sector is undergoing major structural changes.
2018 was a turbulent year for the retail property market. We saw a string of Company Voluntary Arrangements (CVAs) and administrations, wider occupier unrest, tumbling capital values and negative investor sentiment. The volatility has been reflected in the pool of buyers, with traditional buyers often discounting the asset class.
Although reduced, there is still demand for prime retail warehouse investments. From institutional buyers, there is demand for prime retail warehouse investments with an attractive weighted average unexpired lease term (WAULT), strong covenant, situated in locations underpinned by alternative use. An example of the demand, is the acquisition of B&Q, (Croydon) by Royal London.
However, these prime assets are only a fraction of the retail warehouse offering in the UK. Outside prime, landlords have to work harder to make returns on their retail assets and are getting more involved in active asset management. Strategies include Pod development, re-letting vacant retail units or repositioning assets which are no longer fit for purpose. Alternative use value is becoming increasingly important.
The matching process of appropriate retail stock with these new alternative buyers is, however, not as straight forward as it seems. Sellers need to understand the underlying value of their land for alternative use. At the same time, without the stock being openly marketed, new entrants will find it hard to navigate the market, identify the right opportunities and establish true value.
To support our clients through this slightly more challenging market, we developed an interactive tool to filter and identify all retail parks, food stores and leisure schemes across the country. The tool allows us to filter on relevant criteria by potential use and identify which space is fit for purpose.
The tool has been built using a variation of traditional real estate and alternative data sets. Visualising data spatially and interactively provides a new opportunity to search for assets and gives clients the chance to identify their hotspots and select their personal assets of interest.
With this tool, we have been able to deliver our clients interesting off-market opportunities. Together we find their prospects by filtering on location, accessibility, number of units, size and several demographic layers. Once a select group of assets are identified, we can undertake further investigation into individual assets and go through a step-wise approach:
- We look at who owns the asset, which is often one of our long standing relationships.
- We look at current tenants and vacant units and use our extensive market knowledge to advise on covenant strength and estimated rental value.
- We consider surrounding land uses and liaise with our market leading Residential and Industrial teams to establish potential for alternative use underwrite or development.
- We look at demographics to identify the potential customers, residents or employees for our clients.
- Once a shortlist is created we go back to our networks and advise on the best strategy to acquire the shortlisted properties.
Scenario: Be like Investor A
As per example, Investor A believes there is an opportunity to acquire retail warehouse accommodation and convert it for alternative use to industrial. Investor A provides us with their requirements as follows;
Location: Within M25
Size: > 50,000 sq ft
We input these requirements into our dashboard and it identifies all retail warehouse accommodation that fits these parameters. We filter out sites suitable for residential use. The list is reduced from nearly 9000 to 99 properties. We then have the ability to add additional filters including catchment demographics and population drive times and generate a final list of 43 properties.
We then review the ownership details and lease terms of all 43 assets and this results in a shortlist of 10 assets. We then provide Investor A with a summary of each asset and why we believe it is suitable for their requirement.
Investor A has now been provided with 10 potential off market opportunities.
Interested to know how we can help you find your unique property? Contact Daniel Serfontein or Dewi Spijkerman for more information.