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Why high-rise developments are good news for commercial landlords

A recently published report suggests that high-rise developments can help combat geographic and economic pressures in cities, and that commercial landlords could soon start to reap the benefits.

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Knight Frank’s Global Cities: Skyscrapers 2015 report argues that high-rise developments are an effective solution to population growth. Building upwards, they say, circumvents debate over urban sprawl and green field preservation, while cutting commute times and creating ‘inspiring’ work environments where businesses can cluster.

It’s a compelling case, but regardless of whether you fully buy into their explanation for the increased attention high-rise developments are receiving in 2015, the stats behind their growth are clear: higher buildings correlate to higher rents. In other words, the higher the skyscraper the higher commercial rents can be.

Prospects for London

High-rise opportunities are global, but are particularly impressive in the UK capital. Knight Frank’s ‘Skyscraper Index’, based on skyscraper office rents and yields, the spread offered by investment yields compared to national bonds, the number of high rises built, and growth prospects for the city, places London at fourth in the world.

It’s hardly surprising considering the city is seeing record commercial rents, and that 56% more towers are being built than at this time last year. In total 263 tall buildings over 20 storeys have been proposed, approved or are under construction in London. That’s a lot of opportunities for commercial investors.

Regional developments

The boom in high-rise developments isn't limited to London either. Recent reports show that regional developer Moda Living alone has plans for high-rise residential developments in numerous UK cities, including Manchester, Liverpool, Edinburgh, Glasgow, Leeds and Bristol.

Nonetheless, commercial landlords cannot throw caution to the wind. A fact illustrated by a letter from London Assembly planning committee chair Nicky Gavron to the Mayor of London earlier this year. While Gavron acknowledges that “tall buildings can make a positive contribution”, she warns that this comes “only if they’re in the right places, meet the right needs, and interact well with the character and identity of the immediate and surrounding area.”

If commercial landlords are to speculate on this high-rise boom, they will need to heed this advice, and to ensure their finances are suitably stable to take advantage of opportunities when they present themselves.

If your commercial property portfolio is growing and you need help managing rent arrears, contact us at Dukes Bailiffs and speak to an advisor today.

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