The changing face of commercial property investment

October 23, 2020

commercial property investment

The changing face of commercial property investment

The Covid-19 pandemic, and associated lockdown restrictions, could dramatically change the way in which real estate investment works in the UK.

A growing number of retail landlords are now considering converting their leases to replace the traditional upwards-only rent review mechanism with rent based on turnover. If carried through, this would represent quite a shift in the investment proposition, as the landlord would effectively be sharing the operational business risk.

We have already seen investors get comfortable with operational business risk in the alternative investment market, although replicating this model in the retail sector would be a significant further step.

COVID-19 pandemic: A catalyst for change

Many of the trends that we have seen as a result of the pandemic are not new, with lockdown simply accelerating the pace of change. In the retail sector, consumer spending has been migrating online for some time leaving those without an ‘omnichannel’ offering struggling relative to their peers.

At the same time, demand for logistics and fulfilment space has buoyed investment in this area, while occupiers of office space have been looking for increased flexibility in their fixed property costs as more office workers embrace agile and flexible working arrangements.

If landlords adopt this approach for retail properties, leases will include a turnover break, allowing the landlord to remove an underperforming tenant to make way for another occupier or to find an alternative use for the space.

Are turnover breaks a workable solution?

Turnover breaks may provide landlords with the flexibility that they need, although this would also seem to indicate an end to the security of tenure provisions afforded by the 1954 Landlord and Tenant Act in these types of arrangements.

Looking further ahead, it’s possible we could see other sectors adopt a similar model, with the potential for office rents in professional services or other revenue-generating areas to also be linked to turnover. At the same time, given the desire by many investors to have access to the covenant strength of Amazon and other large online businesses, many new logistics developments are being funded by institutional investors on the basis of leases with inflation-linked rent reviews that are capped and collared.

Historically, real estate investment risk and reward has tracked somewhere above bonds and below equities. If the retail market, and ultimately certain parts of the office market, requires investors to participate in operational risk, yields should in time move closer to those of equities. In contrast, in logistics, where investors are benefitting from a secure income, yields should move closer to those of bonds.

Lenders will certainly be happy with the investment proposition in logistics but it will take longer for them to get comfortable with the operational proposition in retail and offices. There may therefore be a certain amount of their catching up with the market, should these developments proceed.

Accumulate Enterprise Park a boost for Doncaster’s economy

When Accumulate Capital unveiled its Enterprise Park development back in March this year, the team was largely unaware of how the rapidly changing situation in the UK and across the world was set to boost the sector our project is intended for.

Warehouse, retail and office space are all expected to benefit significantly from the many changes to the way we do business taking place on a global level.

Despite the Covid-19 crisis, Accumulate fully intends to have the park up and running by the end of 2021.

Doncaster mayor Ros Jones has said the borough will continue to adapt to the current climate and schemes like this help add to the town’s prosperity.

“It goes without saying that I am passionate about Doncaster and the health and prosperity of our communities,” Mayor Jones said. “Generating employment opportunities both during the development phase and for many years to come meets one of the central pillars of our strategic plan.”

“Doncaster has a proud history but has had to adapt to an ever-changing world. We’ve done so, and continue to do so successfully, embracing change, harnessing our progressive outlook and moulding our place in the 21st Century.”

Accumulate’s mission is to support the regional regeneration of the UK by providing local businesses with access to modern commercial facilities. Doncaster Enterprise Park is the first of many projects the firm has launched to fulfil this aim.


Accumulate Capital offers profitable investment opportunities in commercial and residential property at the development stage. This allows your investment capital to harness the significant value achieved from the point a project is planned right through to its completion. Find out more about our current opportunities in development finance by contacting an adviser today.

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