Joint SPR/IPF Webinar: Rental Index / Rent Setting Context

A double-header on rent: how does the outcome of rent negotiations vary by lease event and using lease event outcomes to estimate rental growth through time.



This webinar will be split into two sessions and members can attend both and / or one.



Session 1
How does the outcome of rent negotiations vary by lease event? A comparison of new lettings, lease renewals and rent reviews on commercial real estate assets.
Commercial real estate investors through their agents and asset managers are frequently involved in negotiating and re-negotiating rents – either where lease contracts end or where market-linked rent reviews exist within leases. We examine the outcomes that arise from different types of negotiation, comparing new lettings to lease renewals and rent reviews for a large sample of UK commercial real estate leases. We explore the average outcome and range of outcomes in terms of both headline and effective rents, where the latter adjust for the duration of any rent-free periods granted. Our results suggest that the outcomes at new lettings and lease renewals depend on the market state and for new lettings on the event that led to the vacancy, i.e. expiry, break, re-gear or tenant default.

Session 2
Using lease event outcomes to estimate commercial real estate rental growth through time. Do transaction based indices show a different picture?
The trend growth in rents and the volatility of that growth are important elements of the return and risk from investing in commercial real estate. Existing rental growth series in the UK are constructed from periodic estimates of rental values produced in the portfolio valuation process or from agent assessments of market rent, usually for prime quality assets and locations. Neither type of series is a direct measure of how rents have changed on properties held in portfolios. Research on capital values has suggested that appraisal based indices smooth and lag market movements. As such, there may be doubts around the reliability of appraisal based rent series, so we estimate transaction based series using repeat rent regression models. We distinguish headline and effective rents, and include control variables for different types of lease event. We find that the turning points in transaction-based series are similar, which may reflect how negotiations span reported lease start and rent review dates. They also suggest that rents are more volatile and show stronger peak-to-trough movements than indicated by appraisal based series.

Chair

Vanessa Muscara - Head of Research & Strategy, Europa Capital - Vanessa joined Europa Capital as Head of Research & Strategy in September 2020. She is responsible for providing expert guidance to support Europa’s tactical and strategic business support needs. Before joining Europa Capital, Vanessa held research roles at M&G Real Estate & LaSalle Investment Management. She received an MSc in Property Development & Planning from University College London and an MEng in European Civil Engineering from the University of Warwick. Vanessa demonstrates commitment to the research community in her roles as Past Chair of the Society of Property Researchers (SPR) and member of the Urban Land Institute (ULI) Smart Urban Growth group, Urban Regeneration Council, Women Leadership Initiative and Content Advisory Board.

Speaker

Dr Steven Devaney
, Associate Professor, Henley Business School, University of Reading - Steven's teaching and research focus on private commercial real estate investment, on which he has published numerous academic articles. He has also co-authored research studies for organisations such as IPF, EPRA and RICS on topics that include real estate liquidity, depreciation and portfolio diversification.

Panellist

Malcolm Frodsham,
Director, Real Estate Strategies - Malcolm has 20 years of experience in real estate data, modelling and risk management techniques.  He founded Real Estate Strategies in 2013, an independent management owned business that provides high quality forecasts, research and strategic consulting on the European real estate market.  Prior to Real Estate Strategies, Malcolm was Director of Research at IPD and prior to that Head of Research and Strategy at Legal & General Property.

When
10/6/2020 12:00 PM - 1:00 PM
GMT Standard Time
Where
Online

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