The cost of property surveys, including any environmental survey. Legal costs and search fees carrying out the property investigation, negotiating the contract, dealing with post completion issues such as land registration and stamp duty land tax SDLT. The cost of subsequently letting and maintaining the property. When the market develops short term products, the savings on costs with a property derivative will be especially attractive to short term investors who may find the costs of direct investment prohibitive.
Tactical asset allocation Property derivatives enable an investor to take a view on how the market is going to perform and to react by altering its portfolio almost instantly. They provide a means of minimising short term risk whilst retaining the physical asset in the long term. An investor owns a portfolio largely comprising City offices. The investor believes that the value of returns on City offices is likely to fall for the next years and then recover.
The investor could sell the actual City offices. Not only would this involve cost and time, but once the City office market recovered, the investor would have to re-acquire City offices in the future if it wanted to return to investment in that area. Alternatively, the investor could consider entering into a derivative contract for the year period to reduce its exposure.
For example, the investor could offer to pay a return based on an index that included City offices in exchange for SONIA plus a margin, depending on the market. Once the fixed period of the derivative contract expired, the investor would still have its portfolio of City offices.
The investor would have saved the costs associated with sales and subsequent acquisition of property and would not have been involved in lengthy transactions. However, the index would be unlikely to match the investor's portfolio precisely, so the hedge would not be exact this is known as basis risk.
Ease of dealing Property derivatives avoid:. Any need to manage actual property or any occupiers in a property. Potential environmental liabilities connected with a property. The risk of an acquisition or a disposition aborting because of issues revealed during the course of the property investigation. Disadvantages Illiquidity The property derivatives market is currently small and, as a result, lacks liquidity.
However, the changes introduced by the Finance Act made property derivatives more accessible and attractive see Tax treatment. As investors' understanding of property derivatives grows, the market is likely to become more active.
Pricing The property derivatives market is relatively undeveloped and therefore the best means of pricing of property derivatives is still being developed. The concept of a fair price is a theoretical price based on underlying market assumptions. For example, the fair price can be determined by reference to:. Credit risk of a counterparty in a given transaction. As the derivatives market emerged from the need to trade risk, rather than trading the underlying asset itself, price setting mechanisms are complicated and will evolve as more trades are executed.
Most investors are likely to be able to buy and trade property derivatives without constraint. There are, however, rules that restrict the use of derivatives by charities and pension funds. Such organisations will need to obtain internal authority or mandate before trading. The FCA's predecessor, the Financial Services Authority , introduced an important change in the trading of property derivatives by life insurance companies, which are now able to include property derivatives based on the IPD Index in their calculation of solvency ratios.
Previously, these were not admissible. The fact that life insurance companies are now permitted to trade derivatives should increase liquidity. Lack of understanding and confidence Research carried out by the Investment Property Forum IPF has shown that, for the property derivatives market to develop, there must be an improvement in the understanding of the market on the part of investors and an increase in investor confidence in it. One current difficulty is that the IPD index is a "total property returns" index.
The underlying properties on which it is based are unlikely to match exactly a property investor's actual portfolio. This means that, in practice, investors cannot achieve a perfect hedge. In time, it is expected that there will be indices for different sectors and geographical areas, and that this will improve the potential accuracy of hedges.
Investment Property Databank All Property Index IPD Index An essential element of the derivatives market is an independent and credible index, correlated to changes in value of the underlying asset. As properties vary significantly and the property derivatives market is still illiquid by comparison to other derivative markets such as equities where the underlying product is homogeneous and trading is daily , a credible reference point is a prerequisite.
The IPD Index is valuation based: it is computed on the basis of property valuations rather than the value of transactions taking place in the market. The index is published monthly, quarterly and annually and both indices provide information on capital growth, income return and total return. Most derivatives to date have used the annual index as the reference, which can lead to an asymmetry in payment dates between the parties, and consequently an enhanced credit risk for one party.
As the market develops, it is likely that investors will swap risks between different sectors for example, retail and office and even between regions and countries for example, City offices and German shopping centres. Tax treatment What constitutes a derivative for UK corporate tax purposes is determined by the accounting test.
A derivative will be taxed as a derivative if it is recognised as such under Financial Reporting Standard 25 IAS 32 Financial Instruments: Disclosure and Presentation or any subsequent accounting standard dealing with derivatives such as Financial Reporting Standards and In relation to the taxation of derivatives generally, see Practice note, Derivatives: tax.
The Finance Act and secondary legislation made under it brought property derivatives within the existing UK corporation tax regime for all derivative contracts which had previously specifically excluded property derivatives. The rules are now found in the Corporation Tax Act However, the property derivatives regime still differs from that applicable to non-property derivatives because it is essentially a "capital" regime rather than an "income" regime.
Any gains and losses on property derivative contracts are treated as chargeable gains and allowable losses for UK corporation tax purposes unless one of the following applies:. The contract is held for the purposes of a trade unless the company concerned is party to the derivative contract in the course of mutual trading, or mutual insurance or other mutual business that is not life assurance business.
The company whose tax treatment is being considered is an authorised unit trust, an investment trust, an open-ended investment company or a venture capital trust. For accounting periods beginning on or after 5 December , the parties are connected see Practice note, Loan relationships: Meaning of "connection" and Legal update, Autumn Statement: business tax implications: Property total return swaps.
This enables investors to offset losses from property derivatives against gains in other parts of their investment portfolios if the underlying asset is not property. On a PTRS see A typical property derivative contract , for example, each part of the contract is taxed differently.
Gains and losses on the IPD part are treated as chargeable gains and allowable losses, whereas profits and losses on the SONIA part are taxed as income profits and losses. For accounting periods beginning on or after 5 December , the amount attracting chargeable gains, rather than income, treatment is limited to the actual return arising.
In addition, for such accounting periods, as well as the exclusions from chargeable gains treatment discussed above, chargeable gains treatment will not arise if one of the main purpose s of the company being party to the PTRS is obtaining a tax advantage. For details of the changes, see Legal update, Autumn Statement: business tax implications: Property total return swaps.
Payments made under the transactions are made gross, free of withholding of tax by both parties. For information on the tax treatment of losses on property derivatives that are treated as capital, see Practice note, Tax on chargeable gains: calculating the gain or loss: Allowable losses.
It can often be hard, therefore, to attract the first development, but once that has come, others often follow when the scheme is seen to be successful. Another key factor was, however, making an area more attractive to developers through the greatly improved infrastructure and transport accessibility that had also come with the shopping centre. These factors have stimulated substantial new investment around the RSCs.
A range of other developments occurred, and are still occurring, on adjoining land after the Braehead Centre opened in Since a number of these elements formed parts of the overall scheme that included the shopping centre, and were developed by CSC or its development partners, it is difficult to attribute all this development directly to the initial stimulus provided by Braehead.
We're very proud to be one of the first wave of IT services companies to relocate to Braehead and we hope that our move will act as a catalyst and attract further investment in the area. Similarly, since the opening of the MetroCentre in , on what was then derelict land, an extensive range of other developments have occurred on adjoining sites.
These include a Marriott Hotel, an Asda supermarket, IKEA furniture store, two retail parks and significant amounts of high-quality riverside offices in the Watermark scheme. The importance of the MetroCentre in the location decision of these predominantly retail developments was confirmed in press reports concerning the development of the IKEA store in Lakeside had the same effect.
From the late s onward, the area immediately around that centre continued to attract a range of major retail and leisure developments. More recently, Danish furniture chain Ilva has opened a new store nearby. Of course, some development may well have occurred eventually in these areas even if the RSCs had not been developed. This is particularly the case at Cribbs Causeway, which was already an established location for retail warehouse and distribution uses.
Again, without the Lakeside centre, some derelict land in the area may have continued to be developed sporadically with a mix of retail warehouse and distribution activity. Many of these locations had, however, been ones where no interest had been shown for many years and high remediation costs would have been a deterrent to many development schemes.
There is no guarantee that any such development would have proceeded on the same scale or at the same pace. Indeed, without the catalyst of such a large landmark investment, there is no certainty that anything generating more jobs or better quality jobs would have emerged. There is only limited evidence that RSCs have had a strong influence on locational decisions by other forms of inward investors, such as large-scale manufacturing or business services.
The good transport infrastructure and services that RScs put in place can, however, be significant in such decisions, as new office schemes near Braehead, Merry Hill and the MetroCentre suggest. It is also noticeable that promotional material aimed at inward investors by various UK regions emphasises major shopping centres as strengths of their area.
Shopping is recognised as one of UK's most popular leisure activities and its importance in tourism terms is reflected in the numbers of domestic day trips to which it gives rise. Surveys of tourists to Essex found that shopping centres were by far the most popular destination that visitors planned to visit, with 42 per cent of all visitors compared to 26 per cent for seaside attractions Figure 6. The RSCs are large attractors of day visitors, a significant proportion from outside their local area.
The MetroCentre, for example, has attracted an average of 25 million visitors a year, Braehead 20 million and Lakeside almost 24 million. Typically, between one quarter and one-third of these visitors originate from outside the local sub-region. Lakeside, for example, attracts as many as 1, long distance coach trips annually from as far as Wales, the North West and Humberside, while Braehead attracts visitors from Northern Ireland.
The tourism role of the RSCs is aided by the fact that most have leisure elements or visitor attractions within or immediately adjoining them, often facilities that have established there to draw on the large numbers of shoppers visiting the site. Lakeside contains one multiplex cinema while Cribbs Causeway has the Venue leisure complex beside it. Braehead contains an ice skating complex and conference facility and has a Snowdome indoor skiing facility and museum immediately beside it.
The MetroCentre contains an indoor theme park, a cinema and bowling venue. Local and regional tourism bodies have indicated that the RSCs can help raise the tourism profile of an area by giving it a widely recognised landmark and a reason for a visit. This particularly applies to areas previously perceived as unattractive or in industrial decline, helping transform their image to one of modern facilities and attractions.
The shopping centres complement other flagship visitor attraction projects of an area although this factor may be less strong than in the past when RSCs were a novelty. For many areas, attracting short break trips is a key element of their tourism strategy and shopping has been identified as one of the main factors attracting such visitors. Glasgow, for example, markets its City shopping packages throughout the UK and abroad.
In this context, the significance of the RSCs as tourist attractions is evident from the extent to which they are used by tourism bodies in promotional material. They tend to feature heavily in brochures of tourism bodies, airlines, ferry operators, hotels and coach companies.
The shopping centres are also used in targeted tourism marketing to certain countries and have been an important factor in drawing visits from some European locations. For example, the MetroCentre is a focus of short break visits from Scandinavia, while the Braehead Centre helps the Glasgow area attract some , visitors annually from Iceland and Scandinavian countries, who are primarily on shopping trips.
There is also some indication that the RSCs make a limited contribution to business tourism in their regions. This is the fastest growing sector of the tourism industry nationally and involves visitors on business trips, to conferences, exhibitions and corporate hospitality events. Business tourists are, on average, higher spenders than leisure visitors and business visitors often return to an attractive venue as leisure tourists.
An estimated 90 per cent of arranged conference itineraries have a shopping element, and this reflects demands by delegates and their partners. Attractive shopping facilities nearby can therefore form one of a number of factors that help an area win a particular conference. There is also some evidence that visitors to RSCs form a significant proportion of the trade of local hotels, particularly at weekends.
Surveys found that between 80 and 90 per cent of weekend guests between October and December to some hotels near the MetroCentre were staying specifically to undertake a shopping trip there, and many of these returned on an annual basis. It has long been a concern that the retail success of the RSCs has adversely affected town centres in the surrounding area.
Government guidance in PPS6 notes that new out-of-centre regional or sub-RSCs have a substantial impact over a wide area and can harm the vitality and viability of existing centres within their catchments. It is possible to explore the extent of any such impact by reviewing various indicators of retail health and economic change over time in town centres surrounding the regional centres. Suitable indicators include retail rents, retail yields, retail rankings, and changes in retail employment, levels of retail vacancy, and numbers and types of retail units Figure 7.
A further useful guide is evidence of major new retail developments or investments in a town centre, changes in the general extent of the centre or loss of any key retailers. Discussions with the relevant town centre managers also provided qualitative views on impacts.
Change in retail vacancy in centres near the MetroCentre, — The research underlying this paper examined ten or more town centres surrounding each of the four RSCs, selected in terms of factors such as proximity, size, their retail function and how likely they were to compete with the regional centre. This analysis did not aim to cover every possible situation of retail impact but focused on those centres most likely to have been affected based on the evidence available.
It also has to be recognised that it is difficult to isolate impacts on town centres arising solely from the regional centre as opposed to other factors that can affect town centres, such as national and international economic events, general retailing trends and new developments in other competing shopping centres and out-of-centre retail schemes. For example, superstore or retail warehouse developments nearby can often have more direct impact.
Some broad conclusions can be drawn from this research over four RSCs. First, the RSCs clearly had some impact on adjoining centres but this was largely in the period shortly after the former opened. The evidence, however, suggests that the new developments have not had a long-term, detrimental impact on most of the surrounding centres.
Retail indicators, where available, suggest that most of these town centres are performing generally no worse, and in some cases far better, than they were before the regional centre opened, and most centres have maintained their retail function and status. There is no evidence that the RSCs examined here prevented any planned new investment taking place in nearby town centres.
Some smaller nearby centres did suffer. Gateshead, the closest town centre to the MetroCentre, initially experienced higher vacancy levels and a sharp initial fall in its retail ranking. The centre has also increased its number of retail units and multiple retailer representation while a town centre regeneration initiative is now underway.
New investment is now planned to complement the success of the Quayside regeneration nearby. This was also broadly the case with Grays, a small centre close to Lakeside, which had high vacancy levels and slower retail rental growth after Lakeside opened. The former has now, however, consolidated its role as a convenience goods centre with major new investment from a Morrison's supermarket.
There were perceptions that Paisley town centre in Renfrewshire also suffered after the Braehead centre opened in and the latter may well have played some part in this decline, or hindered that centre moving forward. Paisley had, however, been affected by a range of other factors and was not in strong health prior to Braehead opening. Also, Braehead did not prevent new investments in Paisley taking place that had been planned prior to the larger centre's opening.
Various initiatives are underway to help the town centre develop an altered role. Overall, the RSCs did not prevent ongoing investment and growth in most of the town centres examined. In several cases, such centres were found to have experienced greater effects from retail improvements in other nearby town centres than from the RSC.
These developments, along with other forms of retail improvement, are part of widespread changes in retailing over the past 20 years. There are also indications that the RSCs have stimulated major improvements within some surrounding town centres, leading to increased competitiveness or redefining of their role.
This included new retail investment as well as public realm improvements. This appears to have been the case with Newcastle and Bristol city centres in response to the MetroCentre and Cribbs Causeway Mall respectively, and with Dartford town centre to counter the expected effects of Lakeside and Bluewater Park. Other research suggests that those town centres which responded best to changing consumer and business expectations survived better.
Newcastle city centre, for example, has always responded actively to the development of competing centres — the MetroCentre in particular. New traffic management, car parking, shopping centre development and many other responses, in a climate of private—public sector collaboration, meant that adverse impacts from a strong new competitor were relatively short-lived. The broad conclusion which can be made from this analysis is that the RSCs analysed in this research had some impact on adjoining centres in the period after they opened but that such impacts were generally short-lived and in some cases stimulated new investment in the affected centres.
While a few smaller centres were affected, other factors and longer term problems played a significant part, and the regional centres have stimulated a rethink of the formers' roles. Initial impacts now appear to have stabilised, then new improvements occurred; at the same time the regional centres have become assimilated into the regional retail hierarchy. The RSCs also appear to have brought some less tangible economic effects and some benefits to the communities in which they are located.
Most obviously, they provide a range and mix of shopping and leisure facilities similar to that often found in city centres and give local communities a much higher level of shopping provision than their local area would otherwise have supported. Again, the significant concentration of shopping and leisure facilities, with high visitor numbers, tends to support a higher level of public transport provision for longer hours than would otherwise exist within the local area.
Some of these centres now contain a high level of public transport infrastructure and have achieved a high degree of modal shift. In areas where the aim has been wider regeneration and creation of sustainable communities, this high-quality shopping provision and public transport make the area a more attractive place for people to want to come to live and work, and helps attract new residential and business occupiers, in turn helping to produce a vibrant and mixed community.
Partly because of their high profile landmark buildings, their range of leisure and other facilities, and the good public transport they support, the RSCs often form a widely recognisable and easily accessible facility with an environment that forms a natural focal point for the local community. As such, they tend to be used to host community and business events, trade exhibitions, recruitment fairs and youth events. In addition, they frequently accommodate recruitment and training services Figure 8.
Turning to wider economic considerations, the regional centres provide a substantial amount of modern, purpose-built retail premises of varying sizes, in a single location. These benefit from good servicing facilities and vehicular access, enabling efficient delivery which minimises the need for on-site space for storage of goods. The premises are in single-ownership, allowing for efficient management. There is also evidence that their initial retail competition effects has stimulated new investment and other improvements to town centres in the surrounding area, or forced them to consider their retail role.
In general, these factors should produce long-term benefits in the competitiveness of retailing in the area, and indirectly to regional economic competitiveness. There are also some suggestions that RSCs have encouraged and enabled innovation by retailers for example in larger stores or different styles of display , have stimulated improvements in retail productivity in more efficient use of more modern space and facilities and have changed supply chains with different concentrations of buyers in different places , but there is little hard evidence.
RSCs are now an established and important part of the economy. They are part of the restructuring of the system of retail provision over the last 30 years in the UK, as well as a reflection of retail innovation that occurred to meet changing consumer demands.
Their impact on shopping also needs to be seen in context — they account for only 2—3 per cent of total retail sales, compared with the 40 per cent or so taken by large food stores and retail warehouse parks. RSCs are big players in their regional economies and create a significant number of jobs and wealth in the local areas they lie within, the benefits of which are rarely highlighted; instead the focus has been on their apparent negative impacts despite the lack of evidence to substantiate the positions adopted.
In some cases, the RSCs have given a clearer identity to an area, and helped change perceptions of it. Their role in stimulating new development of derelict and unattractive areas, and in attracting other investment to areas that had been previously less successful in that regard, has also been important. As expressions of modern retailing, RSCs have made their contribution to this overall growth in opportunity, but they have been additionally effective — because of the size, scope and character — in providing large numbers of local jobs for local people, in ways that prestige projects in other sectors such as office development, for example have often been unable to match.
RSCs have worked with employment, regeneration and education agencies to provide training and development opportunities for these groups. With many RSCs located in areas of existing high unemployment, such contributions have been particularly effective. Their impacts on nearby town centres have been variable, depending on the health and strength and innovation capacity of surrounding centres, and the state of the consumer economy.
Those which responded well to changing consumer expectations have fared best, while the new competition they provided has, in some cases, stimulated improvements and investments in other centres. Earlier concerns on their potential adverse effects on town centres have not been fully realised in most cases. Looking ahead, what is the future of RSCs?
No new centres have been permitted since the early s and the recent planning climate has meant any further regional centres are highly unlikely. At the same time, the recent Barker Review of the Planning System gave some glimmer of hope that views on out-of-centre retailing may be shifting.
There is a need for a more considered and informed discussion about the future of the existing RSCs. A new community of homes is being developed immediately north of Bluewater, and Eastern Quarry to the east is allocated for 7, new homes. Most of the RSCs were justified on the back of their potential regeneration benefits. Their strengths and attractiveness stems from a number of characteristics that mean they are ideally suited to drive a new wave of regeneration around them.
Good road and public transport infrastructure, a wide range of shops, leisure and community facilities, and availability of development land around them — these are ingredients that can and should lead to the emergence of RSCs as focal points for sustainable new mixed use communities. It is for the relevant local authorities and regional assemblies in partnership with RSC owners to seize the initiative and embrace a new positive agenda for the future of RSCs in plan-making activities.
Pergamon Press, London. For example: Lowe, M. Britain's regional shopping centres: new urban forms? Urban Studies. Article Google Scholar. Schiller, R. The coming of the third wave. Estates Gazette, 16th August. Davies, R. Planning policy for retailing, in Reynolds, J.
Google Scholar. Northavon District Council. Scottish Executive Development Department Centre for the Study of Retailing in Scotland Regeneris Consulting Based on information supplied by Management of CSC regional shopping centres, — Gateshead Metropolitan Borough Council MetroCentre Employment Survey. English Partnerships Bremner, P. Office for National Statistics Office for National Statistics, London. Based on discussions held with Braehead Recruitment Desk, October Pavey, M.
Unemployment in Thurrock MetroCentre Information Note, 4th edn, Smyth, H. Spon, London. Dawson, J. Based on discussions with MetroJobs, November Download references. You can also search for this author in PubMed Google Scholar. Correspondence to John Robertson.
Reprints and Permissions. Robertson, J. The economic effects of regional shopping centres. J Retail Leisure Property 6, — Download citation. Received : 23 March Revised : 23 March Published : 05 June Issue Date : 01 April Anyone you share the following link with will be able to read this content:.
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|Binary options sale video||However, investors shouldn't be swayed by large dividend payments since REITs can underperform the market in a rising interest-rate environment. An estimated 75—80 per cent of all employees within the centres are sales and customer interface more info including those in catering outlets. The development of such RSCs often brought substantial private sector capital investment to areas that had previously attracted little. The broad conclusion which can be made from this analysis is that the RSCs analysed in this research had some impact on adjoining centres in the period after they opened but that such impacts were generally short-lived and in some cases stimulated new investment in the affected centres. Limited partnerships are certainly the current trend but they are not new. It examines the pros and cons of entering into a property derivatives contract, it looks at a typical transaction and briefly discusses the tax treatment of property derivatives.|
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More risks. Properties intended for commercial use have more public visitors and therefore have more people on the property each day that can get hurt or do. Regional Shopping Centres (RSCs) have long been perceived as having negative effects on the shopping hierarchy and unpopular with Government. If the business has been neglected you may need to invest quite a bit more on top of the purchase price to give it the best chance of success. You may need to.