Pension funds and shop property – the end is nigh?
23 September 2026(2026 Sep: LinkedIn) – Thanks to the furore surrounding the proposal to ban upward-only rent review, we were reminded that the idea of ‘upward-only’ was originated by institutional landlords during the early 1970s. Possibly, inspired by the basis typical of pre-1970 leases with their pre-fixed uplifts every 7 years.
Makes sense to be certain that an open market rent agreed at one review would not fall at the next review. Strictly, an open market rent on review can go down. As generations of private investors have discovered, upward-only is nothing to do with valuation. It’s the rent payable after the review is agreed or ascertained. Unlike landlords that invest other people’s money, private investors can’t afford to risk borrowings: fear of breaching the loan-to-value covenant haunts. Thinking of property as a long-term investment is challenging. No increase at one review does not mean no increase at the next review, especially where it’s only because of timing that the review has missed out. But, as a novice landlord remarked, after I’d said his looking forward to an increase wasn’t going to happen, the review date too soon to participate, but he could look forward to an increase in 5 years’ time, “what good is that to me?” A reversionary investment is no benefit if you don’t want to sell.
Institutional landlords, pension funds, are selling a financial product. To demonstrate performance in the shop investment market, they require rental and capital growth, To ensure their choice would at least hold its purchase price, come what may. Rental growth to pay directors, managers, advisers, with some left over for pensionners. Having convinced thousands of savers that 6% per annum growth is reasonable, ok to begin with, no competition. Gradually juggling cash-flow into a chronicle of excuses.
My opinion that the decline of the ‘high street’ is a consequence of the cumulative knock-on effect of comparable evidence driving out the established retailers whose prescence was the attraction for footfall – the departing retailers taking their customers with them to the better-value-for-money retail parks and at least one of the top 20 shopping centres as measured by property costs – fails to address the deeper cause.
The institutional pension fund ownership of prime positions, high-networth investors, insistence upon the highest rent at review, ‘high streets’ cleansed of independents, preference for covenant, has handed the balance of power to multiple retailers that, for all their attractions as investment covenants, can up sticks and relocate or use CVA to stay where they are.
In my view, institutional pension funds should stick to stocks and shares, as should amateur private investors. Obvious that buying shares in a bank, for example, means going in the same direction as the bank, unlike buying into a high street only to find the trading position declines when the bank closes a branch.
Return to Article