George Walker meets Addington Capital
Over the past five years, I have worked with and learnt from Addington Capital’s Matthew Allen and Martin Roberts.
Our paths first crossed at the Cheltenham Festival 2013 when we discovered that Matt and I had been offered the same graduate job with DTZ in 1987. Fast forward, and I am waiting for the pair to arrive for breakfast at Carluccio’s in Fitzrovia. As I order a coffee, they confidently stride through the restaurant and make their way to the table. They have every reason to be confident. Since founding their real estate asset management firm, ten years ago, they have successfully worked with highly regarded partners such as Europa, Tristan and CarVal to achieve strong returns for their clients and investors. More on this later.
I welcome them both just as the waiter appears to take our breakfast orders. We order two granolas with yoghurt, and one eggs with mushrooms (without prosciutto). “Perfect,” Martin smiles.
So… “How is the auction market?” Matt asks. There is little doubt that after the strong start at the beginning of the year, we saw a little jitter at May’s commercial auction, and we saw a dramatic uptick in demand in July. We have sold £298m so far this year so it is not all doom and gloom which I am quick to point out.
“But aren’t you just selling retail?” Matt chips in. With so many negative retail headlines, it is easy to understand why many in the industry would come to this conclusion, even if it is only part of the story. “Appetite is still there, but we are seeing investors increasingly hold on to their best stock,” I explain.
The food arrives, and we are momentarily distracted. Eggs and granola aside, we move on to retail; a topic we are all well versed in.
What is Addington’s approach to retail investment? “We take both a macro and micro approach,” is the response. “When we look at retail today, we ask: Is the retailer going to be around in ten years and can they afford the rent? Especially if they are independent.”
Over the past year alone, several big high street names, such as House of Fraser, Debenhams and Arcadia, have either gone into administration or been forced to close down stores. In June, Bathstore went into administration, forcing the closure of 135 units and fashion chain, Monsoon was next forcing the closure of 30 stores with rent cuts to be negotiated at a further 135. “And there are some interesting macro things at work,” Martin says, referencing how the sector has fallen foul of the growth and impact of online shopping, too many tired stores, poor management and weakening consumer confidence.
However, this perfect storm is not confined to the UK market. According to the Royal Institution of Chartered Surveyors, vacancy rates are also rising across Europe. And it is not just the high street, shopping centres are being hit, too. “We just have too much retail floor space,” Martin continues. “We need to figure out what to do with it.”
And as a good property man he alludes to the opportunities. “As a country, we’re going to grow by 0.5m people a year, so there is clearly a strong story for property, particularly in cities and the south east.” He highlights that it is about identifying the right product and re-imagining retail for the future, including combining retail, offices, leisure and residential to bring an asset back to life.
“For us, we will be looking at where and how we can add value and we recognise that we might need to spend money and take a bit of a risk,” Matt says. They both agree that repositioning a town centre asset that is at the bottom and offers scale presents the biggest opportunity for investors. “Current and future space requirements are difficult to predict. Take car parking, for instance, will we need as many car spaces in the future?” Matt asks.
He continues to say that it is as interesting a market now, as it has ever been, and to capitalise, the industry needs to be agnostic to use.
“To revive retail, we need more generalists in the sector. Our industry focuses too much on specialists; we have a blind spot and you need a combination of uses and a mix of experience, but you rarely find it in the same team,” Matt says.
Time has flown, and the waiter is checking if more coffee is needed. We all politely decline, as I bring the conversation back to Addington’s ten-year anniversary and I ask what their plans are for the next five years. Matt says: “We will keep looking for opportunities across our three main sectors — retail, residential and offices and we’ll keep a close eye on what our end user wants or expects. It’s going to be interesting. As the market evolves, we’re evolving and we’ve got to respond to the market and deliver the right product.”
He adds: “We’re all trying to anticipate the future. But everything is moving at such a pace. Look at how much technology has changed the retail sector for example or the rise of BTR in the housing market. It’s all about keeping ahead of the game.”
Any predictions? “The market is moving much quicker now than ever before, and we will see ever shorter leases,” Martin forecasts. And in terms of residential, with population growth almost guaranteed, it is the demand for beds they feel that will drive the best returns, whether it be build-to-rent, hotel or student accommodation.
And to bring high streets back to life, they suggest incorporating more residential into our town centres — residents will always need convenience shops and leisure activities, they say.
“Where’s the private investor market going to be?” I ask.
“It’s going to take a long time before the private investor loses his love affair with property. There is still a desire for land and property ownership and requirement for income in this country.” Martin explains.
“The great thing about an auction is that it’s the best place to establish market price for smaller assets, particularly in a difficult market” he finally adds.
I could not agree with him more.
Matthew Allen and Martin Roberts are both Principal and Co-Founder at Addington Capital.