CBRE Market Insight Briefing: 2018 will be remembered as the year of the CVA

CBRE hosted its annual property market insight briefing at the Ageas Bowl to investors and local businesses. Keynote speakers, Sandy Kinninmonth lead Partner at RSM’s Corporate Restructuring and Advisory team in Southampton; and Christopher Cain, Senior Specialist at Homes England focused on the rise of Landlord Company Voluntary Arrangements and the Housing Infrastructure and Home Building Funds.

CBRE speakers, Capital Advisor Director George Richards gave an update on the on the ever-changing landscape of local authority investment. Research Director Andrew Marston gave an overview of the property market, highlighting some of the positive PMI data and regional office demand.

With many high street retailers including House of Fraser, Mothercare and New Look all opting for CVAs over recent months, RSM’s Sandy Kinninmonth gave a fascinating overview of the role CVAs play in the restructuring sector. 2018 will be remembered as the year of the CVA, and in particular the landlord CVA, with many high street brands restructuring their business by using a CVA to reduce property related costs. Whilst there has been an increase in the use of CVAs there are still a relatively little used restructuring tool – in Q2 of 2018 there were 3918 insolvencies of which only 94 or 2% were CVAs.

The hardest hit sectors are, not surprisingly high street retail due to the growth of the internet, and restaurants due to market saturation.

Landlord CVAs have several common themes which regularly include terminating the leases for loss making sites, reducing rent on some retained sites in attempt to make them viable and moving rents payable from a quarterly to monthly cycle. Interestingly, the perception is that some businesses entering CVAs were not really on the cliff edge and were perhaps being opportunistic in their attempt to reduce their property costs. However, research shows that CVAs can fail frequently when not set up well, with up to 65% being terminated without achieving their intended aims, of which 7% are terminated within the first two quarters. Close landlord involvement and the on-going scrutiny of tenants’ financial performance were both recommended.

Christopher Cain, one of Homes England’s investment specialists, gave an overview of the two funds the Government has launched with the aim of providing some 500,000 new homes. The Housing Infrastructure Fund is a capital grant programme that will award £5bn to local authorities on a highly competitive basis, providing grant funding for new infrastructure that will unlock new homes in the areas of greatest housing need.

  • Marginal Viability (MVF) – focuses on smaller schemes experiencing up to a £10m viability gap, where HIF funding is effectively the ‘last piece of the puzzle’;
  • Forward Funding (FF) – focuses on ambitious and long-term strategic schemes which require upfront infrastructure funding in order to get them to the delivery stage.

The Home Building Fund will help developers who are unable to get traditional finance in place. Again, divided into two categories, the Fund will invest £2bn on delivering infrastructure to support strong future pipeline of housing supply and £2.5bn on development finance to SMEs, custom builders and innovative construction methods.

CBRE’s research showed that the massive spike in local authority investment volumes initially seen in 2016, continued throughout 2017 and into 2018. Over the last 18 months there has been £1.2bn invested in offices, £820m in retail and £540 in industrial sectors, with over 11 councils have in excess of £100m invested in property, six of which are in Hampshire, Surrey or Berkshire.

George Richards highlighted that following a government consultation process at the end of 2017, new guidance was introduced in April this year that requires councils to:

  • show more accountability and transparency,
  • have a greater focus on local investment and regeneration; and
  • as part of their treatment of the Minimum Revenue Provision, provide an annual investment strategy.

Commenting on the event, CBRE regional managing director James Brounger said:

“Our market insight briefings continue to gather momentum and interest from a wide mix of investors, occupiers and local authorities. We were delighted to welcome two new external keynote speakers from RSM and Homes England, both of whom gave us a real insight into the current popularity of the Landlord CVA and Government funding initiatives to help bring forward much needed housing throughout England.”

Andrew Marston gave an overview of the current property trends, in London and throughout the regions covered by CBRE. Looking specifically at Southampton, while the city centre office take-up was somewhat below the five-year average, out of town deals, particularly at Solent Business Park have seen some significant transactions in the first half of 2018.

Looking to the future, Southampton Airport has announced a new masterplan which will see up to 15 new routes, more than double the current passenger numbers and provide some 1,500 new jobs over the next 20 years. A six-week public consultation is now underway.

There are signs that GDP growth is beginning to pick up, in part as a result of increased consumer spending and the good summer weather. Unemployment continues to reduce, sitting at a level last seen in 1974. However, there was strong real wage growth then, which is not being seen now and is unlikely to be seen until employment levels increase.