Institutional investors and upward/downward rent review
2 April 2026(2026 Apr: LinkedIn) – Upward / downward rent review will not, in my view, be an issue for institutional commercial property investors judicious in buying. Unlike private investors whose time-horizon ranges from personal pension to generational, with rarely any wider responsibility, institutional investor decision-makers are more likely responsible for hundreds/thousands of people whom they are unlikely to meet. So one might think that such decision-makers a lot more cautious and not throw it to the wind. During the 1970s, for no logical reason, the minimum price for institutional interest in a retail property investment used to be £250,000. Soon after I established my practise, I acted for an insurance company on rent reviews in 4 parades of shops so naturally my first choice for any shop investment that I thought it should buy. When a landlord with two shop investments in a town centre high street asked whether I had any clients to buy them for £50,000 each, I thought the properties had long-term potential so when I sent the details to my client I wrote a short report with my reasoning. The insurance company thanked for the report but declined because of the price range. I thought it very shortsighted and was proved right when years later the same insurance company paid five times as much for a shop investment nearby. There are not many towns in England and Wales that have perennial growth potential, probably no more than half a dozen. Generally what happens is a cut-off point at which it becomes too expensive commensurate with a level playing field. Something has to give. In a market based on competition ultimately there can only be one winner in each market sector which means everyone else falls by the wayside. Capital growth that depends on yield compression requires high interest rates when buying and shrewd selling when interest rates fall. But the propositions to buy only come onto the market when prices are high because interest rates are low. Overpaying is rife. Rent increase comes from the existing tenant able to afford to pay more or a new tenant thinking it can afford to pay more. For an institutional investor, the illiquidity of commercial property is high risk. Get the timing wrong on buying, easy to overpay. It is much easier to time buying shares in a quoted property company than direct investment. Unlike commercial property valued infrequently, shares on the stock market are valued every second during trading hours. Unlike direct investment whose value is an informed opinion, but an opinion nevertheless, of one or a few valuers, a share price is the opinion of hundreds/thousands of ‘valuer’ actual buyers. Currently, share prices of quoted propcos owning prime property offers about the same yield as direct investment, but with none of the costs and risks of direct investment. Upward/downward review removes the cushion hiding the poor decisions made by Institutional investors, most of which should never have bought into direct investment.
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