Taking stock: quarterly market update from the Valuation Division

Taking stock: quarterly market update from the Valuation Division

Busy and interesting are two words that spring to mind as we review our latest quarterly market performance, which coincided with the government’s first Budget since the onset of the Covid-19 pandemic.

Over the last quarter, we have valued in excess of £320 million of assets and we anticipate this to increase fairly rapidly as the government’s roadmap out of lockdown rolls out through the spring.

Mainstream lenders adjust their focus

Compared to Q1 2020, there has been a notable reduction in the volume of cases involving retail and houses in multiple occupation (HMO) assets as mainstream lenders adjust their focus. Our Valuation Division continue to monitor sectors where the use of the RICS Material Valuation Uncertainty clause may be appropriate, for example where there is no direct contemporaneous comparable evidence to rely on. This is particularly the case in the retail sector where there have been very few transactions to rely on as comparable evidence, making the assessment of market rent and appropriate capitalisation yield challenging for valuers, resulting in lenders adopting a cautious approach.

In mid-2020 the UK Commercial Real Estate Report identified a steep decline in lending, with many lenders withdrawing from the retail market; we have seen this trend continue through the remainder of 2020 and into Q1 2021. 

Residential picks up but BTL landlords still impacted by restrictions

Landlords seeking possession of residential property due to non-payment of rent continue to face government restrictions. This protective measure is understandable given the financial pressures faced by many, but the knock-on effect is beginning to bite for buy-to-let landlords and starting to impact the sector as a whole.

The residential development sector remains particularly active. Homes England and United Trust Bank announced in February a five year alliance to provide development finance to SME builders as part of a £250m Housing Accelerator Fund.  We continue to support United Trust Bank and a number of other residential development lenders in their assessment of projects. 

Activity gathers pace (in some sectors)

Our valuation work in Q1 was varied in terms of sectors, from industrial and logistics investments to owner-occupied industrial buildings, residential development sites, and buy-to-let portfolios. Our most notable cases have included:

  • Industrial investment of 380,000 sq ft buildings on 25 acres near Colchester for a High Street bank
  • Strategic regeneration sites for London Borough of Newham and London Borough of Enfield
  • Residential development site for 35 flats in Wembley for a private developer
  • And a four bedroom apartment in Clink Wharf SE1 overlooking the River Thames and The Golden Hinde

RICS announces new Guidance Note and Consultation

The RICS hope that the new Guidance Note issued to all valuers regarding cladding to residential buildings will offer clarity as to when an EWS1 form is and is not required, which should reduce delays that have been caused as lenders struggle to understand the risks.

RICS is also currently consulting on the implementation of a new Guidance Note in respect of the valuation of leasehold residential property, addressing matters such as the assessment of diminishing leasehold assets, the impact of ground rents and service charges.

Release of Distressed Assets

The government’s moratorium against landlords seeking to forfeit leases due to non-payment of rent has now been extended to 30 June 2021, with an indication that further steps will be introduced from 1st July.  This is applying pressure to landlords who whilst maintaining support from lenders will undoubtedly begin to feel the squeeze. We expect that at some point these issues will need to be addressed, but it seems that the protective measures that have been put in place will hold many of these issues in abeyance well in to 2021.

Key Contacts