The Subplot | Why revenue matters more than ever

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

Starting today, The Subplot is going monthly. The next edition will be on Thursday 6 June.

THIS MONTH

• Gather ye rents in the merry month of May: Northern property focuses on revenue as the half-year approaches
• Elevator pitch: your rundown of what’s going up, and what’s heading the other way

Listen to the podcast edition

MAY THE (RENTAL) FORCE BE WITH YOU

We heart revenue

If interest rates stay higher for longer, which they will, then revenue matters more than ever. A Widnes warehouse deal shows how the hunt for secure income is dominating investors’ minds as Northern property runs up to the June quarter day.

Foundry Point, Widnes, is the kind of perfectly decent but uninteresting 49,000 sq ft shed that wouldn’t generally make it to an official London Stock Exchange announcement. Yet it has just scored its second LSE appearance. The unit at Halebank was let in June 2018 on a five-year lease at a rent of £216,000 a year (big wave to Amazon) and then revealed to the exchange by Warehouse REIT.

Now, a new lease has been signed with an engineering equipment business, adding £325,000 to the contracted rent. That’s 50% up on the previous passing rent. No wonder the landlord, Warehouse REIT, trumpeted the achievement in its quarterly LSE update.

Not just Widnes

Widnes isn’t an isolated example. Warehouse REIT reported rents up 38% on new lettings, 17% on renewals, and 27% on rent reviews – a tribute to the way the world has changed since the pre-pandemic days of 2018. It’s a one-off boost, but still well worth having. The Widnes news comes as a raft of results suggests rents are looking okay, and valuations less stomach-churning.

Grosvenor hearts revenue

You want another example? Grosvenor, the Duke of Westminster’s property business, has been edging into regional offices. It owns 87,000 sq ft Toronto Square in Leeds and its 217,000 sq ft Manchester portfolio includes The Hive, Ship Canal House, and Canada House.

2023 figures, released this week, show Grosvenor’s portfolio devalued by about 2.7% – a shade less than one might have expected – but recorded revenues looking good. The UK arm delivered revenue profit of £35.4m, £8m higher than the £27.4m achieved in 2022.

“The principal driver of the improved performance was rental growth derived from leasing events, reduced voids, the new flexible office portfolio, and reduced expected credit losses on rents receivable,” the report said. In other words, more people paid more rent in a more timely way.

Anything goes

The hunt for revenue – good, strong, reliable revenue – is a theme everywhere you look. In the last few days, British Land has been scouring the land for retail parks, Texan giant Hines is on patrol for data centres and self-storage, LGIM is (suddenly) creating a student housing platform. Revenue is the name of the game for all of them.

And it’s not hard to see why: if interest rates stay up, and we have to wait until July/August for the first 0.25% cut with another in December, then what matters is the profit and loss account, and not so much the balance sheet.

Atlantic interest

Revenue is also the name of the game for overseas investors, particularly those in the US, for whom investing back at home isn’t appealing. The US commercial property scene is flat on its back – the office market is six feet under – the UK offers genuine income in a market where valuations appear to have bottomed out, and exchange rates are helpful. Inevitably London scooped most of the first quarter US investment, netting a cool £3bn.

However, BNP Paribas Real Estate, which tracks these things, says the effect is spreading in the second half of the year. “Investors are encouraged by the rental growth prospects,” BNPRE said. Expect the conservative approach to choosing revenue over betting on value to continue into the summer and beyond.

ELEVATOR PITCH

Going up, or going down?

Get ready to welcome a bumper springtime crop of new metro mayors; and have a jolly good chuckle at some entertaining development plans in Liverpool. Doors closing, going up.

Laughs in Liverpool

Two cultural developments in Liverpool, both of which made some sort of progress this week, prove the point that, in the world of drama, happy and sad are two sides of the same face.

Efforts to transform the Littlewoods HQ at Speke into a film studio have been going on for at least seven years. In 2017, Capital & Centric stepped in to rescue a long-becalmed residential and hotel redevelopment of the 180,000 sq ft landmark. Twickenham Studios signed in 2018 and recommitted to the scheme after a devastating fire, won planning permission in 2020 and a chunk of funding in 2021. Then the anchor tenants began to drop away, starting with Liverpool John Moores University. This week, Broadwick Group – which already runs Manchester’s New Century Hall and Depot Mayfield – was associated with the scheme, although Capital & Centric kept mum amidst speculation Broadwick wasn’t the only interested party.

The trouble all along has been that it’s not entirely clear the film industry needed big studios in Liverpool – it’s not that they don’t like Liverpool, in fact, they love it, it’s just that what they like about Liverpool is Liverpool, not studio space. Meanwhile, the economics of the big streaming content producers have gone up, down, and sideways. Currently, the market is consolidating and production budgets are falling. Fingers crossed the Littlewoods site finds a use, although it may not be quite as film-centred as anticipated.

Meanwhile in the city centre, the charitable trust founded by the late comedian Sir Ken Dodd has launched its most ambitious project to date. Despite the Doddy branding and a little shrine on the third floor, this is essentially new rehearsal space plus a cafe for the Royal Court Theatre. The proposal, which includes a giant loo-brush tickle-stick outside, breezed through planning – a surprise to those who watch Liverpool’s unpredictable planning committee. Perhaps they agreed with below-the-line comments on Place North West about Sir Ken’s worldwide appeal?

Subplot explored that worldwide appeal via analysis of Google searches over the last five years and can report that it’s a gala day when there are more than 10. Mostly there are three or four searches for Doddy a day. That said, searches are highest in the Isle of Man and Jersey, the two places where Doddy allegedly hid suitcases of money before the unfunny tax people interfered. The UK and Ireland are in the top five too, and so is St Helena, the microscopic Atlantic island that only recently got a reliable internet connection. No doubt the Saints are catching up on the news since Sir Ken’s death in 2018.

What a mayor!

A mighty crop of new metro mayors will be elected in polling stations across the North today. Liverpool City Region, Greater Manchester, Tees Valley, West Yorkshire, and South Yorkshire are joined by a new North East mayoralty embracing Durham, Northumberland, and all points in between, and an equally vast York & North Yorkshire mayoralty doing exactly what it says on the tin.

Should property people get excited? Hmmm. The York & North Yorkshire mayoralty comes with limited powers over property and planning. These include capacity for housebuilding and the creation of mayoral development corporations, but there’s no strategic planning power. However, the new authority – like all the others – will have control over transport, a downstream-of-property issues with all kinds of land use implications. Dualing the A64 will be towards the top of the new mayor’s in-tray.

The reliable think-tank complaint is that mayoralties tend to under-deliver because they are underpowered. This slightly misses the point because they were designed to be underpowered. If they weren’t, then local councils, who retain the whip hand on everything and don’t plan to give it up to some egomaniac mayor, wouldn’t allow them to exist. That’s how politics works. So don’t expect fireworks.