Published by kind permission of the North East Times.
Chris Dobson talks to Adam Serfontein, managing director of Hanro and chair of Developing Consensus, the region’s business-led property partnership, about the likely issues to be faced by the property sector this year.
You seem to have had an active two years, both buying and selling investments. What has been the driving force?
Traditionally, Hanro have been long term investors in property and, while that remains the case, the market forces in late 2015 and early 2016 presented a good opportunity for a fundamental review and refresh of our portfolio.
Our sales strategy was completed in the summer of 2016, which has enabled our reinvestment to commence in earnest throughout the course of 2017. The outcome of the Brexit vote was fortuitous in that respect only!
Will it be more of the same in 2018 or do you see a change in sentiment?
I see more downside risks in 2018 as we go into the Brexit negotiations in earnest and the reality of the scale of change becomes clear. The results of Brexit may be good, bad or both but what is absolutely clear is that the journey will be rough. There has also been good rental growth and capital appreciation in many sectors over the last five years.
Of course, to counter this there is still a weight of funds to invest, particularly from long-term European funds which, in the right sectors and locations, can offset such risks with currency exchange. Other forms of investment have quite a high risk profile too. With the UK equities market hovering close to an all-time high, selective investment in property can still remain attractive. As ever, the time is always right for the right property. We are targeting markets that benefit from a substantial student and tourism base.
There is an absence of new-built Grade A office space in central Newcastle; what opportunities does this give to investors and developers such as Hanro?
It gives many interested parties a tremendous opportunity to create ‘appropriate’ stock. There is actually quite a lot of Grade A stock to be completed in Newcastle city centre by 2019. This will be a success, but the opportunity now is to create good-quality smaller suites on a flexible basis. Much of this stock has been taken out over the last ten years through change of use to hotel, residential and student use. There is one refurbished office property now being marketed at £25 per sq ft.
Is this a readily achievable benchmark for the Newcastle city centre?
Headline rents are only ever of interest to those directly involved in property. Yes, this headline rent is achievable, but as you suggest it is only a benchmark. The power of context is provided by the level of incentives that is required to achieve this. As a long-term investor, I would far rather achieve £23 per sq ft without any extended rent free or premium. I can then benefit from the rental increase at the appropriate time.
2018 could finally see a regional devolution agreement become a reality. How important is this for the region as a whole?
It is critical. Central Government has set the ground rules and we must adhere before we can attract our fair share of funds. North of Tyne devolution is an excellent start and I applaud the three political and administrative heads. It is, however, a ‘start’ and we must welcome others to join as the very clear benefits emerge.
Will devolution strengthen the region’s position within the Northern Powerhouse?
Yes, it will. That said, I view us as being on the ‘outer marker’ of the Northern Powerhouse and as a region, working together, we can achieve great progress with or without this. As an example, the HS2 project will benefit the Manchester and Leeds conurbations hugely, and our region only to a very limited extent.
As a region, working together, we can gain more direct benefit through persuading those in power to further improve the East Coast main line. As a graduate in 1987, I used to market Newcastle as being two hours 37 minutes from London. There has been no improvement in travel times in 30 years.
If you had a Government cheque book, what would be your top three priorities?
Put resource into effectively targeting benefit fraud; abolish void rates on vacant property, which does exactly the opposite of what it was intended to do; and, somewhat predictably, invest heavily in the East Coast mainline.
Do you have anything else to add?
The only people who care about local authority boundaries are those who work in them. We absolutely must work together across the seven local authority boundaries to coordinate our inward investment activities. We have a good team, with a woefully inadequate budget.
From the creation of the North East Local Enterprise Partnership and the Combined Authority, we now effectively have eight teams, instead of seven. Our inward investment activity, at point of entry, needs to be one ‘super team’. Wherever an occupier lands in our area, we all benefit. Work together.