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Work, play, live: why boring offices make bad investments

Work, play, live: why boring offices make bad investments

Goodbye commute! SLI’s Jason Baggaley reveals why millennial workers are worth wooing.

A focus on good quality properties, housing good quality tenants, in good locations, helps Standard Life Property Income Trust’s (SLIPIT) manager Jason Baggaley to ensure he is able to pay an attractive and sustainable dividend over the medium term.

While the investment trust typically has comparatively shorter leases than the market average, he believes a dividend yield above 5% can be maintained through careful selection of the right style of assets.

Baggaley argues that by holding good quality assets, he is able to re-let more quickly, in addition to generating superior rental growth.

He sees this trend playing out particularly in the office sector where he scours cities across the UK looking for very select investment opportunities with places such as Manchester, Bristol, Birmingham, Reading proving particularly attractive.

‘All these cities have got great transportation links, great universities, and are vibrant. I want to have an office building located in the centre of all that, in those towns where people can work, live and play in a small area as commuting for an hour and a half seems to have gone out of fashion.’

But location isn’t enough for Baggaley, as he’s finding that the functionality and interiors of the offices are becoming increasingly important.

This is the case especially for younger professionals who now make up a significant part of the workforce, with their spending therefore a key driver of local economies.

‘It may sound silly to some people but having a very boring office environment doesn’t help recruit millennials, you need to have something that has a bit of a wow factor, so we make sure we pay attention to that when we invest or when refurbishing existing holdings.’

Local economies are not just being reshaped by a changing workforce, but by other big shifts, such as the migration of shopping from bricks and mortar to online.

This has had a profound impact on the UK’s traditional high streets, which Baggaley believes is a barrier to investment.

‘Retail at the moment is a cause for concern. Good retail is expensive and has a very low yield, whilst poor retail is just not worth owning. This makes me very cautious about buying into the retail sector at the moment as there’s so much structural change underway.’

He believes the area which is most dangerous is secondary retail; small high streets, and poor quality old shopping centres which will need lots of capital expenditure to update.

‘Retail warehouse parks which are tucked away and nobody knows they’re there; they’re going to need a lot of capex to make them relevant.’

In comparison, a type of asset he find more attractive would be a relatively modern retail warehouse located close to a dominant park.

‘The rent on this type of warehouse will be less than the dominant park but everyone has to drive past it to get to the main one. I have bought two or three assets like these as I find them much better value.’

The other area that Baggaley likes to invest in is industrial. Over half of SLIPIT’s assets are invested in the industrial sector, with the main focus on distribution. The aim is to hold units that are well located to benefit from the growth of internet shopping, and the need to fulfil last-mile delivery, as well as buying in areas that will have limited supply due to loss of industrial land to residential uses.

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The opinions expressed are those of Standard Life Investments as of November 2017 and are subject to change at any time due to changes in market or economic conditions. 

This material is for informational purposes only. This should not be relied upon as a forecast, research or investment advice. The value of an investment can fall as well as rise and is not guaranteed – an investor may get back less they invested.

Issued and approved by Standard Life Investments Limited. Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. © 2017 Standard Life Aberdeen, images reproduced under licence.

This article was provided by Standard Life Investments and does not necessarily reflect the views of Citywire

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