Fixing a hole

In some quarters the commercial property market isn’t broken. After all, yields have compressed, international interest in London is at record levels and commercial property has not taken the bath it did during the recession in the early 1990s.Yet all is not well. Not only do we have a north-south divide, but we also seeing a number of areas where direct government interference is starting to cause longer-term problems.

We should start reform with the planning system. It was already complex and difficult. The last government didn’t help. While I applaud their attempt to remove the roadblocks to major schemes, that move simply turned the general public against the idea that development can be positive.

Government policy should advocate why development is good for the economy and the environment (both built and commercial). Yet it needs to do this in a way that ensures that people caught up in the uncertainty, can receive proper compensation and quickly.

Compulsory Purchase Orders are not only cumbersome but they rarely pay the true market value to those who have to succumb. It’s not a fair system, it certainly isn’t quick and nor is it efficient and transparent. Look at the utter mess over the new high-speed rail link, the u-turn over the third runway proposals at Heathrow and the massive delays in delivering the Crossrail scheme.

Planning problems
Let’s be honest about this. The expense of going through the planning process, the delays that occur increase the cost to provide the very schemes we need. This expense we could do without and that’s purely due to bureaucratic processes. Streamline planning, speed up the process and ensure that proper compensation is paid to those displaced. It really is simple.

Once the planning system has been sorted out, the cost of investment needs to be reduced. As a rule I dislike attacks on capital. Stamp Duty is just that. It doesn’t raise that much money and in the commercial world so many transactions are completed in such a way as to mitigate the Stamp Duty liability. It’s a nonsense and a sham. Indeed if we had a simple scheme, without loopholes, where the amount paid was a flat one percent, investors would not bother trying to avoid paying. The government would raise more revenue in the process. We would also see less complicated structures set up for avoidance, transactions would happen more quickly and the liquidity of property as an asset would improve.

Yet I would not finish there. Don’t we have a wonderful system for raising revenue from business? Rates. What an utter fiasco. Look at our high streets. We have killed them off. We have killed local businesses. Made it difficult for sole traders and scorched the earth of the very fabric of society. Look at the vacancy rates of high streets across the country. Of course some high streets are very successful but to have a tax based solely on rent is ridiculous. It’s old fashioned and in many cases totally unfair. Scrap it. Replace it with some form of local taxation that is not based on an antiquated and rather unfair basis of calculation. We have a very sophisticated system, a hugely expensive consultation process and an arbitration process that needs to go. A high street recovery would be welcome. To do so a removal of the system that killed them off in the first place would be a good place to start.

Hand in hand
Landlords should be forced to change too. While I understand the resilence of the long lease and the five yearly upwards only rent review clause, here is another area that requires an overhaul. Predicated off the notion that landlords are kings and the occupiers the serfs. Ridiculous! Landlords need tenants and tenants need landlords. It should be a symbiotic relationship. Encouraging businesses to thrive, while allowing them to move as and when they need to. The system as it stands is all very well. It does work and to an extent it’s existence underpins the vast sums of international investment, as buyers can hardly believe their luck as they buy contracts that in effect are bulletproof. It’s time we had a rethink. The system doesn’t encourage businesses to locate in the right areas, to expand as they can or should do. Nor indeed is it easy for a business to work out their costs of occupation. If you look at it – rent that can only go up. Why is that acceptable? A new system of leases that helps landlords make good investment and development decisions but has a little more favour in respect of the tenant too.

There are shining examples of amazing, compelling, striking and bold architecture. There are all too many examples of crass, boring, pastiche and lazy schemes too. Rewards for quality architecture and a system that encourages great design. Higher and more detailed understanding of such areas of expertise need to be instilled at local and national government level. All too often the personal desire of a local planning officer are taken into account when agreeing a scheme. Sometimes these people are brilliant, visionary and forward thinking. All too often we end up with schemes that are less than desirable because of the influence and interference of politicians. Our built environment is not only the domain of the investor and the tenant but also a focal point for the wider community.

Befriending banks
What of our friends, the banks. While I am sick and tired of banker bashing and all the political rhetoric that goes with it; it’s about time the industry got it’s act together. There are too many people responsible for lending who have little or no understanding of the industry. They say they do but their understanding of the legal complexities are often poor and so assessing the risks of a particular asset, scheme or development is hindered by their lack of knowledge. Extra training and qualifications are required; numeracy needs to improve not only in the banking world but in the professional environment too. It strikes me as odd that we have a profession advising investors who seem to speak different languages. Understanding and explanation of terms, numbers, returns and risk is often weak and as a result we have ended up with poorly structured deals. The ‘on’ or ‘off’ approach to financing needs to end too. Look at the situation we currently have. No development finance is available at all. This strikes me as crazy. We are building the next bubble before we have even recovered from the last one.

All in all our commercial real estate markets are exciting and vibrant. Government interference and a lack of progress by the industry means we are neither as competitive as we could be nor are we as forward thinking as we’d like to think we are. Government and industry should work together to rip up the rulebook. Developing and enhancing our built environment rather than allowing vested interests and the past hinder our economic and future progression.