Waterhouse Gardens Salboy p Salboy

ICG Real Estate's £100m boost to Salboy's Waterhouse Gardens in Manchester could signal a turning point in the real estate debt market. Credit: via Salboy

The Subplot

The Subplot | Is the property market’s ‘long Covid’ finally over?

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England and North Wales.


  • Pennies from heaven: is the property market’s ‘long Covid’ finally over?
  • Elevator pitch: your weekly run down of what’s going up, and what’s heading the other way

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Property’s ‘long Covid’ could be over

The repricing of commercial property assets, underway since the Covid lockdowns began four years ago this month, appears to have reached a turning point. A flurry of deals and announcements this week shows what’s coming.

Good news! We’ve hit the bottom. How do we know this? Because the sharks of private debt are moving in, fast. It’s not so much that they smell blood in the water, but they fear they won’t smell blood in the water much longer.

Grab your chance

These people aren’t fools. Inflation is working its way out of the system, interest rates will come down, the mood will improve, and prices will rise. In the language of Abrdn, “the rebasing of real estate sector valuations has stabilised, leading to an attractive entry point – particularly for senior lenders.” DWS Group, which has £768bn under management, talks of “interesting opportunities for investors in private debt.” At the same time, a lot of US office property – where a wave of loan defaults are due, and where this money might otherwise go – looks distinctly vulnerable.

Buy Manchester resi….

So they want to buy, now. What does this mean for new developments – or those in need of refinancing? We can narrow this down fairly quickly. The first thing it means is: lenders are rapidly closing deals for the assets that will bounce back fastest, particularly in some sectors (city residential) in some locations (Manchester, Leeds). This week, ICG Real Estate agreed £100m debt to fund Salboy’s 556-apartment scheme at the former Boddington’s Brewery. This was ICG’s second Manchester buy in 18 months, and the reckoning is that buying now locks them into Manchester’s graduate-driven growth.

…and Leeds resi

It’s not a coincidence that Grosvenor, the Duke of Westminster’s property business, also chose this week to reveal an extra £900m debt strategy for the residential sector, starting with £120m, and including both a Leeds build-to-rent scheme and a Leeds student scheme in the £46m opening transactions.

Quick, hurry!

The second thing it means is that, for the minute, the flood of new money into the market is dizzying. To pick a handful of examples from the last few days, we learned that pension scheme pool LGPS Central has allocated £200m to an M&G Investments debt fund. We also heard reports that New York-based Apollo Global Management is launching a £790m fund mixing its own resources with private capital in a bid to buy into European real estate. A day or two later, Investec, always a name to watch, took the wraps off a real estate equity strategy with the aim of finding a home for £250m before 2026.

Beds, sheds and…offices?

Will this money go to beds and sheds, as usual, or will office and retail get a look in? Abrdn is pretty gloomy about regional offices, but everyone’s risk profile is different and, according to Investec, the answer to whether money’s going to offices is ‘yes.’ Its new business line has already won funds from the UK and the Channel Islands, Switzerland, and South Africa, and is angling for the “off-market acquisition of highly sustainable regional offices from a £150m pipeline,” and notes that “rapid UK commercial real estate repricing offers attractive entry point into sector.” Its first buy was in the Surrey town of Guildford, which maybe shows the definition of regional simply means “not London.”

Not distressing

Non-performing loans are opportunities to restructure in ways the really big institutional money may find helpful and appealing, says DWS. This is just as well: Bayes Business School says that around 40% of outstanding UK commercial property loans are due to mature this year and next, invariably at wildly lower interest rates than the borrowers could get today. Distress is inevitable. The latest Bayes Commercial Lending Report is due next month, and that will reveal how deep the distress is – and show how long private debt has a window of opportunity.

This may not be the end of an on-again, off-again four years for the Covid commercial property market, but it’s the beginning of the end. Probably.


Going up or going down?

Not a brilliant time to make your big town centre plan dependent on new supermarket development, as Blackburn has discovered. But perhaps an increasingly good time to refurb – or even drop – dated city centre office blocks. Doors closing, going up.

Blackburn brewing up a storm

Some stories never end. Thwaites announced that its Blackburn town centre brewery needed relocating in 2011. Talks with Sainsburys about a supermarket on the site collapsed in 2014. Thwaites finally left in 2018, the site was cleared in 2020, and in 2021 Blackburn with Darwen Council signed up Maple Grove as development partner. By 2022, in the glow of post-Covid recovery, everything looked promising, as Subplot (6 January 2022) reported.

Morrisons has now decided to stay put in the existing Blackburn store, meaning that site can’t be redeveloped for housing, which had been an important part of the regeneration jigsaw.

Today, local politicians aren’t agreed whether or not the Morrisons’ pull-out is a fatal blow to the council’s £250m masterplan. But we’re in Monty Python Black Knight territory here, and “’tis but a scratch” isn’t a convincing response. After two failed attempts to get a supermarket to anchor the site, maybe it’s time for a rethink?

The trouble is that supermarket development isn’t really a thing at the moment, as Savills and CBRE explain. Volumes have fallen since the giddy post-pandemic days, retailers’ emphasises are on making the best use of existing floorspace. If new stores are needed, they tend to be convenience stores, or mid-size for Lidl and Aldi. So not the bigger stores which the Thwaites site probably needs. Profitability isn’t particularly good for any grocer, even the fast-growing discounters. Store openings are well down on the average – 150 new stores across the UK would be a strikingly strong performance.

Apparently the maths didn’t work for Morrisons. If they had, the maths might have worked for investors. But although property investors love supermarkets, their interest has a lot to do with the supply being so limited. Rental growth hasn’t been the lure. If town centre regeneration relies on supermarket deals to provide the rocket fuel, it’s not going anywhere fast.

Drop the block

How times flies. In 1996, when the 54,000 sq ft Norfolk House was completed, Manchester was just waking up after several decades of economic torpor and Norfolk House was one of half a dozen speculative new builds that reanimated the city’s office market. This was prime stock. Yet with the best part of 30 years between then and now, Norfolk House now has 39,000 sq ft vacant and is on the market for upwards of £8.5m at a yield so high it’s not worth reporting.

The building’s history makes an interesting parable. First, it was prime prime, with tenants including the government, Coutts the private bank and Zurich Insurance. T&S Stores sold it to Warner Estates in 2003 for £14.8m. By 2008, the economy was in a tailspin, and Warner had its problems, and were looking for £20m to offload the building. That didn’t quite work so in 2010 completed a refurb at what today feels like the absurdly low price of £530,000.

This is where things began to go wobbly as the building changes hands time and time again, and the office market begins to change shape: more funky, less factory. M&G did some work on the block then sold to Deutsche Asset & Wealth Management in 2015 for £16.8m, and in 2019 Deutsche sold it to Knight Frank Investment Management for £19.1m. These deals both reflected yields north of 6%. Now in 2024 it’s on the market for less than half what it was worth five years ago.

It’s not a brilliant market for offices just now, but that said, this is the kind of pricing that will provoke interest. Neighbouring buildings are being refurbished, and the capital value on this (about £157/sq ft) is great if you want to spend on doing the thing up. Get that price a shade lower and the plot, rather than the building, becomes the story. A bellwether worth watching as Northern cities weigh up the future of their standing office stock.

Get in touch with David Thame: [email protected]

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