‘We are getting out of London while we can’
The residential property market in London is starting to deflate. Will commercial property in the capital go the same way? Strong growth in recent years has made it difficult to find value in London and property fund managers are now looking further afield.
Richard Kirby, manager of the £1.2bn F&C Commercial Property Trust, told Telegraph Money which cities were catching his eye and how commercial landlords were facing increased competition from serviced office providers such as WeWork.
The trust is on our Telegraph 25 list of top portfolios (telegraph.co.uk/ go/25funds).
Our preferences at the moment are UK regional office buildings, industrial spaces and logistics sites [such as warehouses and depots], although the latter are extremely expensive.
We are looking at the cities outside London as we achieve a higher yield and more value. We especially like Bath, Bristol and Manchester. Earlier this year we bought an office building in Bristol as the supply of prime accommodation in the city centre was at a record low, so we have seen big rental growth there. It is a very attractive city with a lot of amenities, but a lot of the older, poorer office stock has been taken out of the market in recent years.
This office block is our only holding in the city at the moment but we are looking to increase that exposure. We have been reducing our London holdings over the past couple of years because yields have fallen so low.
We have already sold a couple of assets that we think have reached the limits of their growth. The last one we sold was an office building in Soho – 25 Great Portland Street. Although we have been reducing our exposure Richard Kirby is the lead manager ger of the F&C Commercial Property Trust and manages a number of portfolios.
He trained as s a chartered surveyor and joined F&C in 1990.
He went on to become a fund manager 23 years ago. to central London, we still have a significant exposure to the West End.
Our largest asset is St Christopher’s Place, a development containing retail, residential and hotels. It has performed very well for us over three to five years.
F&C property fund manager Richard Kirby tells Adam Williams why regional cities are more attractive
Logistics sites performed very well for us from 2009 to 2014; we were buying properties that delivered yields in excess of 9pc. We were there before the stampede towards that sector and have benefited from rental growth.
As for mistakes, looking back I should have got into industrial property in the South East quicker.
We are underweight on this compared with the benchmark, but the pricing is too expensive and it is too late. That was one strategic error.
We have had little exposure to shopping centres since we made the decision in 2007 to get out of the sector. We have never gone back and that has been very beneficial to our performance in the past decade.
We remain invested in out-oftown retail parks and have two large in investments in that area [Newbury Retail Park in Berkshire and Sears Retail Park in Solihull, Warwickshire].
We like the convenience they offer s shoppers, but they are not without th their challenges given the number of r retailers in trouble at the moment.
We have some exposure to retailers a at risk, but we would hope to relet th those units if tenants failed.
That could be hard work as w we might have to split them up