UK Commercial Property Trust Limited’s (LON:UKCM) manager Will Fulton is concerned about the impact Brexit may have on the banking sector in London.
The City rental market has now started to fall back a little, he told Proactive.
Vacancies will be higher and there will be more space available over the second half of the year, he believes.
“London is the hardest to predict in terms of politics, economics and rental growth.”
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Brexit uncertainty in City
How the Brexit negotiations pan out will be a key factor in the next few months, he adds, and while demand from fintechs has kept demand in the capital strong this year so far, Fulton sees difficulties ahead east of the City in areas such as Canary Wharf.
A couple of buildings have been sold by UKCPT in the West End, in Gt Marlborough Street and outside of the Ritz, but that was due to the price offered being too attractive to turn down.
Fulton adds that overall he is very happy about the position of the trust, which has a large chunk of its property portfolio in the south-east and outside of London.
Voids are just 4%, gearing is 12% net and a shift towards industrial in 2015 is already paying off with good rental growth now starting to come through.
Industrial space uptick
Demand for industrial space in areas is growing as groups such as Ocado and Marks & Spencer, both of which are UKCPT tenants, build new ‘big box’ distribution centres.
Added to the fact there is almost no speculative building of this type of property, leading to a dearth of supply, he expects rents to go higher.
The trust has £100mln to invest currently, but this is likely to be on a special opportunity such as a distressed seller or in an area close to an infrastructure upgrade, such as the HS2 rail link.
“I love it when other people spend to improve infrastructure and can hang on their coattails,“ he adds.
Income the driver
UKCPT is managed by Standard Life Investments and is one of the few Guernsey-based property trusts not to convert to Real Estate Investment Trust status, though this option is still under discussion by the trust’s board.
Most of the investor base, aside from its largest shareholder Phoenix, is made up of retail shareholders, either directly or through wealth management funds.
As such, income is a key focus for the trust and Fulton believes this is where the interest in property will lie in the next few years.
At 87p, UKCPT’s dividend yield is just over 4% while the shares trade at a modest discount to net asset value (88.9p).
UKCM in good place
Fulton is pretty happy with that yield, the void situation and also the type of properties he owns.
“[There is] Not too much appetite for risk in property for the moment and the next few years is all about income and who can either generate or manufacture it.
“UKCPT’s diverse portfolio, which generates high quality and sustainable income, is well placed in the current market environment.”