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The AGM was interesting; an opportunity to hear Fletcher King’s (LSE:FLK) directors’ perspective on the state of play in the UK commercial property market; their plans for future SHIPS investments and the absence of value in maintaining a stock market quotation.
Note that my financial interest in FLK in very limited now, having sold most of my shares in the summer. But I’ll hang on to a few so I can more closely follow them through the next recession and recovery.
(Other Newsletters on FK: 2nd – 9th Dec 2014, 5th Jan 2015, 3rd – 6th Aug 2015, 11th Sept 2015, 17th Sept 2015, 29th – 30th Dec 2015, 23rd, 25th and 26th July 2016).
Overview of the UK commercial property market
In the immediate aftermath of the Brexit vote the London property market reacted violently. It has now calmed down. Office letting is reasonably stable, with pre-Brexit vote level of rents being achieved again.
Retail property in London is still strong, but the provinces are suffering. This is a continuing trend caused by elements such as growth of online shopping and over-supply – not Brexit-shock related.
Across the board, if anything, since July the drop in capital value is minor, of the order of 4-5%, with supply still limited, and a positive tenant frame of mind.
Investors can compare the return on commercial property (say 5% pa ignoring capital gains and losses) with that of say bonds (1-2%), and conclude that property as an asset class is still attractive.
The exchange rate fall helps to stimulate overseas interest in London property.
A very low percentage of tenants becoming insolvent.
Rent delays are also at a low level.
However there are some negatives:
The trend before the Brexit vote for central London office rents was a gradual fall. That is continuing.
Retail rents are also trending down.
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