HS Financial Services - Property void rates
Property void rates
Void rates can be key to income-growth potential - The unoccupied proportion of a property portfolio, or the 'void rate', can be crucial when examining the performance of property funds and their potential for income growth.

Unoccupied property

Any level of void-rate seems bad. After all, unoccupied property brings in no rental income. Nor does it provide the service charges needed to meet the bills for maintenance and general upkeep. The cost of property taxes, insurance and security still need to be met for unoccupied assets.

With tenants typically a key source of income for property funds, working to minimise void rates would seem to be a key duty of the fund manager. The lower the void rate, you would think, the better. And for much of the time, you would be right.

Strategic voids to boost rents

A high void rate could inidicate a portgolio of poor-quality properties in difficult-to-let locations. Alternatively, it may point to a poor tenant base. However, property managers sometimes deliberately keep properties empty. Philip Neil (AIPT), points out that within a portfolio there can be what he calls "strategic voids". He adds: "These are properties whose unoccupied status now will, we believe, allow us to make much better returns in the future - these are voids that give us the opportunity to add value".

When void rates indicate 'value add' opportunities

A quarter of the AIPT portfolio targets one investment theme - value-add property assets. These assets offer the prospect of strong income growth over the long term through intensive active management such as property redevelopment. Such opportunities lead to periods when assets are at least partially vacant, creating strategic voids.

One of the value-add assets in the AIPT is an office building in Soho Square, London, next to what is due to be a Crossrail station at Tottenham Court Road by 2018. Philip says: "This is a refurbishment opportunity with huge potential. Currently, rents stand at about £45-55 psf. One of our other funds have developed the former Football Association building a few doors down and is now getting more than £70 psf on some of that space. And we would expect to see huge income growth from our building".

Difficult comparisons

Rising void rates may indicate a property portfolio in decline or one with much income-growth potential. As Philip says "We are on the lookout for opportunities to add value and this means that inevitably our void rates will fluctuate from time to time". While void rates can be important when analysing property-fund performance, the underlying reasons behind the rate are likely to be instructive than it's size or direction.
Posted by: Anne Barker on

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This agreement is in relation to MediEstates Limited whose registered office is at 1st Floor, Pacific House, Stanier Way, Wyvern Business Park, Derby, DE21 6BF acting for and on behalf of our clients ("the Vendors"); and yourself (Buyer's Name) in relation for an introduction to a prospective sale of a business as a going concern. By registering through this agreement I agree to all terms set out below:

  1. Definitions
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