As an established property investment company; you’d think we’ve gone crazy to start a blog post talking about Pokemon and specifically, “Pokemon Go”. This new smartphone App has been sweeping millions of housebound gamers from their sofas to the outside world this week; on the hunt for new virtual animals to add to their arsenal! Well, bear with us and I’ll tell you why this is an important thing to take note of.
I’ve always been interested in the way trends can influence investment behaviours; and furthermore investment value in a variety of markets. After reading a story about Pokemon Go this week, it got my mind ticking. The story involved a pizzeria owner in America who had purchased credits within the online game to lure special Pokemon to his location. With that, came gamers, smartphone in hand, on the hunt for said Pokemon. This all sounds fairly simplistic, but my interest lies in the effect this goes on to have.
With the increased footfall at the pizzeria, this owner is likely to see an increase in revenue and further, an increase in profit. Great for the pizzeria owner… Also, great for the landlord, why? The landlord of this property has just found his rental that much more secure; this drives down the risk profile of the tenant, increases the covenant strength and ultimately, leads to a higher capital value.
You’re an investor; you have the choice of buying a shop currently tenanted by a pizzeria with 2 years left on the lease. It is trading at a 7% rental yield today, but the occupier’s net profit is low and falling. They’re unlikely to renew, therefore you’re likely to see at least a small rental void. Given that same investment at a 6% rental yield, but an occupier who is experiencing rapid growth and is likely to be ok with a rental increase at the end of their current term, most investors would jump at the chance of going with the second option. Now, this is theoretical and the scenario may not have that much of an effect, but you see where I’m coming from, I hope.
Somewhere this kind of domino effect can be seen and proven is in the office market throughout London. I recently read an article on the new start up that ranks office space by its connectivity, giving the best rankings to those offices where the quickest connections are available. Obviously in turn this leads to higher desirability and often, higher rents. Higher, more secure rents transfer into higher capital values.
At Fresh Invest, our property investment advice is to try to capitalize on markets where you see consistent growth. One such market is student property and small buy to let investment properties. Recent legislation has certainly driven many people into smaller lot sizes; away from the high SDLT fees and degrees of uncertainty that come with a purely capital growth play in the London and Regional areas.
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