The sectors we buy, and what drives rent in each

We assess sectors on the following basis:

Retail

Passing rent on a shop is driven by the pitch, by turnover through the door, and by the covenant's ability to pay out of trade. It is threatened by footfall moving along a street, by an anchor closing, by online substitution in comparison goods, and by the incentive levels required to relet. Leases tend to run five to fifteen years with upward-only reviews, and the FRI position places repair on the tenant, which keeps the owner's capital expenditure to structure, roof and shopfront.

Office

Rent is driven by specification, floorplate, parking ratio and commute. It is threatened by the cost of bringing older buildings to current occupier expectations and by energy performance standards that restrict letting below the required rating. Leases are shorter than they were, frequently five to ten years with tenant breaks, and multi-let buildings carry a service charge the owner has to run.

Capital expenditure is the sector's defining feature. Plant replacement, common parts, and refurbishment between tenancies fall to the owner in a way they do not on a single-let shop. Covenants tend to be professional firms, regional corporates and public sector bodies. Arabesque Syndicate at Arabesque House, Monks Cross Drive in York, syndicated on 1 March 2017, sits in this group as an out-of-town office with parking.

Industrial

Rent is driven by eaves height, yard depth, access and the shortage of supply in the local market. The threats are obsolescence in older stock, sites where the yard cannot take modern vehicles, and estates where a single departure leaves a specialist unit empty. Leases are commonly five to fifteen years on FRI terms with low owner capital expenditure beyond roof and cladding. Covenants are trade counters, distributors and light manufacturers, and covenant strength varies widely at the smaller end.

Leisure

Rent is driven by trade, so the operator's turnover, cover numbers and wet-to-dry split matter more than the building. The threats are cost inflation on labour and energy, licensing, and the fact that a failed operator leaves a fitted-out unit with a narrow pool of replacement tenants. Terms are typically ten to twenty years with turnover provisions in some cases, and fit-out sits with the operator while the owner carries structure and plant.

Mixed

Commercial ground floor with residential or office above, which produces two income streams with two different management regimes, two repair burdens and two sets of statutory duties. Upper parts add value where there is independent access and cost money where there is not.