“We look at a three- to five-year time horizon when we buy property. Currently, I like the industrial sector. In particular, what it terms ‘last mile delivery’.”
Rowley explains that this refers to the small distribution units tied to the continuing rise of e-tailing.
“While I continue to believe in traditional bricks and mortar retailing, we are definitely seeing an evolution of more and more tenants that offer distribution services,” Rowley adds.
Click and collect
Online retailers increasingly need smaller distribution centres nearer to customers rather than the large regional distribution centres they used to use. It enables better delivery times.
“I think that it is going to persist and grow for at least the next three to five years, so we have been adding exposure in this type of asset and are still doing so. Smaller units also are needed for what the retailers call ‘click and collect’,” she says.
In contrast to some property investors, Rowley is far from preoccupied with investing predominantly in London.
“Another theme we are targeting, which I think will persist, is the office sector. There are opportunities in what we call the ‘big six’ provincial office markets,” she says.
“These are Bristol, Leeds, Manchester, Birmingham, Glasgow and Edinburgh. What we are seeing is businesses going back into cities rather than moving outside the cities to office parks. This is driving rental growth in these cities and occupancy rates. With new development activity low and not expected to pick up in the short term we see these trends continuing.”
Away from offices, the retail sector is providing Rowley with food for thought.
“In retail, I would say this is the market where we are seeing the greatest polarisation in UK property.
“What I mean by that is dominance of places that really give consumers what they want over those which do not. To be sustainable for income growth, you have to be the best shopping centre in a town or city. I do not want to buy the second or third best,” she says.
“Retail locations also have to have the right sized units that allow flexibility for tenants to be moved around. We also like to see availability of spaces for bringing in leisure elements, such as restaurants, to increase the dwell time of customers in retail locations. I have to feel sure I have got the best in class when looking at retailer investments. We look at footfall, the type of tenants, the mix of tenants,” Rowley continues.
“You can go wrong in any sector but things can go much worse in retail than elsewhere if you do not buy the right property.”
Another significant chunk of Rowley’s portfolio is leisure sector property.
“Leisure is doing well at the moment,” she says. “You look at companies such as Travelodge and Premier Inn, and their rooms rates and occupancies are increasing. Restaurants went from strength to strength in 2015 and so far in 2016 things have held steady, although not quite so much new activity as last year. When you own leisure parks, with a cinema and a gym, for example, there will be six or seven restaurant boxes and you want the right mix in there – some will be familiar chains but it can be good to have new entrants, which generate interest and footfall.”
While Rowley is quick to emphasise the bottom-up aspects of her approach, she keeps a keen eye on the macro environment.
“When you look at rental growth, it is pretty highly correlated to GDP and I try and look at which part of the economy is contributing to GDP in what way,” she says.
“So, for example, is it retail consumption or is it more manufacturing? Is it the service sector or the financial industry? It is about working out where rental growth is most likely to be coming from.”
Of course, you cannot mention macro in relation to the UK without considering the upcoming referendum on European Union membership. Rowley says this has not yet had a large effect on commercial property but she expects a more noticeable impact as the 23 June vote nears.
“What we are seeing in the occupational market is very much business as usual,” she says. “Lease renewal negotiations and new lettings are continuing as normal. As we get nearer to 23 June, I expect to see some tenants deferring decisions.
“This happened with the Scottish referendum when there was a little bit of deferment by tenants. Terms can be agreed but firms will be a little bit slower in signing leases around that time.
