Commercial Landlords and Limited Companies: Will This Beat the BTL Squeeze?
The British real estate market is not going through its best period, with capital values now 21% below their June 2022 peak. This is worrying news for those Buy-to-Let (BTL) investors who are likely to see flat rental values throughout the next couple of years.
In this article, we will explore the causes behind this squeeze and what commercial landlords and limited companies can do to counter it.
Which are the main reasons behind the current woes?
Contrary to what some may think, the main reason for the current situation is not a decrease in the demand for real estate properties by buyers and sellers. The primary culprit seems to be the increase in borrowing costs.
Back in November 2022, Bloomberg already warned that the higher interest rates imposed by the Bank of England might push house values down considerably. The move by the Bank of England came as a reaction to the galloping inflation, with prices increasing at the highest rate in 40 years.
Coupled with an adverse change in investors’ sentiment, this pushed capital values down, a decrease likely to continue until the summer. As for rental values, analysts predict a decrease in industrial, shopping, and residential rental values.
Green buildings will experience fewer vacancies and see faster rental growth
The concept of green buildings has been around for some time but has gained momentum in recent years. These structures are designed to minimise their negative environmental impact thanks to the use of energy-efficient materials and renewable sources. Unique design features allow them to achieve this goal without reducing the occupant’s comfort level.
Moreover, these buildings can help owners, tenants, and managers achieve substantial savings by cutting energy costs.
Some of the main traits of green buildings include:
- the use of recycled materials;
- the installation of solar panels;
- the use of low-flow toilets and showerheads for insulation and water-saving purposes;
- the installation of energy-efficient windows and heating systems, such as geothermal heat pumps;
- the use of low-emission paints;
When designing these buildings, architects also try to maximise the use of natural lighting, aiming for adequate illumination while reducing the need for electricity. Similarly, ventilation systems are designed to maximise airflow while minimising energy consumption.
The growing interest in these types of buildings also means that they will see faster rental growth than their traditional counterparts.
Commercial landlords and limited companies can use the current downturn in the real estate industry as the right source of motivation to invest in greener and more sustainable properties. It may help them go through this period without suffering as much as those not investing in this green transition.
Investment in building security may also help you fight the squeeze
Another way to make your property more attractive to potential tenants is by investing in security measures that can reduce the incidence of crimes and other adverse events.
Properties are exposed to risks such as break-ins, burglaries, vandalism, and fires. However, installing modern security solutions can significantly mitigate these risks and help tenants feel safer.
One such investment is video security. Property owners should consider installing modern security cameras in key areas. In indoor areas, this means covering spots like elevators, corridors, and hallways, lobbies. Properties with outside areas may also consider licence plate capture cameras for those entering the property’s parking lot.
The implementation of video analytics software can further reinforce the installation of video cameras. This increasingly popular solution can analyse very large volumes of data in order to identify patterns that may indicate suspicious activities, which would help prevent certain events before any damage to the property or business occurs.
Investors should also consider installing video security solutions that are cloud-based, as this can allow businesses and tenants, in general, to access security footage from anywhere, as well as scale server usage up or down based on current needs.
Access control measures are another must for properties that want to reassure their occupants that unauthorised personnel won’t be allowed to access the building’s premises. These range from basic modern solutions, like keypads or fob readers, to more sophisticated technologies like facial recognition.
Of course, basic security measures include an effective alarm system, which also includes smoke and carbon monoxide detectors.
Safety is crucial in determining how much a potential tenant will be willing to pay when renting the property. Investing in these solutions can be a great strategy for those investors who want to minimise the impact of the current BTL squeeze on their rental returns.
Smarter buildings can attract more tenants
A trend that goes hand in hand with green buildings is that of smart buildings. This term refers to properties that use a range of interconnected technologies that allow businesses to maximise the comfort of the occupants, increase the productivity of their workers and achieve significant cost reductions.
For example, occupancy sensors will detect when the room is empty, which will trigger the network to turn the lights off automatically to avoid energy waste. Another example is the use of voice-activated technologies to minimise the number of manual tasks workers need to perform on computers.
Smart buildings are equipped with a Building Management System (BDS) that acts as the central hub for all smart devices. This allows them to obtain superior benefits than those obtained by the single sums of individual technologies.
Making your building smarter may be the right move to offset the current real estate market climate and ensure your property attracts higher-quality renters than your direct competitors.
Recovery is not far away
Fortunately, the UK real estate market doesn’t seem far from the beginning of the recovery. Bond yields seem to have found a post-COVID-19 equilibrium, and the UK has gone through re-pricing faster than other national markets, which are also less liquid.
Paired with the fact that inflation is set to halve by the end of the year and the awareness that the squeeze was never due to a lack of demand, there are good reasons to think that the country’s real estate market may be getting closer to a robust recovery and better times for commercial BTL investors.
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How Can Commercial Landlords Beat the BTL Squeeze?
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The UK real estate market is not going through its rosiest period. However, commercial landlords can take action to minimise the impact of the BTL squeeze.