Tag Archives: london
UK Property Market Fragmentation Creates Room For Nimbler Investors
http://www.ft.com/cms/s/0/bf00a9dc-2ab4-11e3-8fb8-00144feab7de.html#ixzz2iRwPOhUv October 16, 2013 UK property market fragmentation creates room for nimbler investors By Ed Hammond The war of words being played out by politicians and economists over the UK housing market offers a concise explanation of the biggest issue facing the country’s commercial property market. For those looking at London, the country is in an unsustainable housing bubble, fuelled by the deep cash reserves of overseas investors. For everyone else, the market is as placid as it has been for the past five years. In the office, industrial and retail property markets, which form the backbone of many institutional investment funds, the trend is identical. London has pulled away from the rest of the country in terms of value and rental demand. So much so, that trying to analyse the national market with London at its head increasingly obscures, more than clarifies, the reality. Statistics do not always provide a clear indication of fact. Yet there is one fact that highlights the predominance of London’s property market: last year foreign investors spent more money on the city’s real estate than they did in any other European country – and more than three times the amount invested in the UK excluding London. But just as the economic slowdown caused by the financial crisis created a stark divide between London and the rest of the country, so the story of the rebound is one of increasing fragmentation. “The game has changed – the success now is coming from choosing the right [properties] in the right places, rather than taking some sort of broad investment philosophy and trying to deploy a large amount of capital,” says a principal at a leading private equity fund. The argument has been underscored by the recovery of certain sectors, such as warehouse property, which have been coveted by investors for the prospect of high rental yields. Similarly, demand has returned for out-of-town shopping centres, reflecting expectations that consumer trends will be geared more towards large malls and away from high streets. Overall, however, the picture is still bleak for most commercial property located outside London, the southeast of England and a few larger city centres. During the past 18 months, rental growth across the UK commercial property market has been flat, according to CBRE, the property consultancy. Meanwhile, capital values have declined moderately during the same period. Hans Vrensen, global head of research at DTZ, the property consultancy, says: “It is not any more a question of London and everywhere else: there are opportunities emerging in different parts of the UK, but it is very asset- and location-specific. Arguably the largest single structural change to the UK commercial property market during the past decade has been changes in the debt market “There are pockets of demand, especially from those investors for whom London has become too competitive, but they tend to be focused on single assets or small portfolio deals. A lot of parts of the country are still seeing very little interest in terms of new investment.” The fragmented market has presented opportunities to the more nimble investors, who can deploy small amounts of capital and take on more risk than the institutional investors, such as pension funds, which have traditionally dominated the property market. Private equity funds, in particular, have taken advantage of some of the opportunities outside London. For example, Blackstone of the US has been among the most active investors in the industrial sub-sector, creating a specialist logistics and warehouse property business. Arguably the largest single structural change to the UK commercial property market during the past decade has been changes in the debt market. Banks, traditionally the main sources of capital for the industry, have been pulling back their lending to property companies. The resulting gap has drawn in new debt providers, including some of Europe’s largest life assurers. The likes of Legal & General, Axa and Generali have all increased their lending to property business as a way of getting exposure to the asset class. Perhaps the worst affected area of the UK property market has been the high street. A string of high-profile retailer failures and continuing low levels of consumer confidence has wrought destruction on town centre shopping districts. One of the main issues facing the high street is that the properties tend to be owned by multiple landlords, impeding the route to a single solution. “Property owners range from major institutions, to private equity groups with multiple investors in their finite-life funds, to families, charities and private individuals,” says Stephen Barter, head of property at KPMG, the consultancy. “Each has a different ownership and investment rationale, different time horizons, different ways of making decisions, and different management behaviours.” Continue reading
Property Investors Warm Up To UK Regional Opportunities
http://www.ft.com/cm…l#ixzz2iRueiSOU October 16, 2013 11:47 Property investors warm up to UK regional opportunities By Kate Allen England’s regional commercial property markets are once again starting to gain interest from investors. Regional commercial property has been deeply unpopular as an asset class in the past few years, in sharp contrast to the boom in London. But, according to analysts, this is beginning to change. “Now might be a good time to look at the unfashionable regions,” says Mat Oakley, director of commercial research at Savills, the estate agency. “Office take-up rose in the first half of 2013 across the majority of [English] cities and availability is falling. The proportion of investment that is outside London also rose in the first half of 2013.” Take-up in the first half of 2013 is nearly a quarter higher than the long-term average, according to CBRE, the commercial property group, with more than 3.8m square feet acquired by occupiers. Adrian McStay, CBRE national team managing director, says that Leeds, Manchester and Bristol have fared particularly well. “Since March we’ve seen a good uptick in both occupation and investment. Big corporate [tenants] have strong balance sheets and are now looking at their real estate strategies,” he says. We have seen a real move out into the regions, not just by UK money but also overseas investment. Two years ago you couldn’t even find a buyer for some regional offices. – John Slade, BNP Paribas Real Estate chief executive There are three main reasons for investors’ change of heart towards the regions. First, the UK’s economy has begun to claw its way back to growth this year, rising 0.7 per cent in the first half, which is feeding through to demand for office space. Intense competition among investors in the London market is also pushing demand outwards in a search for other opportunities. Third, supply is falling as new development remains frozen. As a result, yields are beginning to fall. According to BNP Paribas Real Estate, prime regional office yields have dropped to 5.75 per cent from 6.75 per cent at the start of this year. “At the start of the year we forecast investment starting to flow into the regions and that is now happening,” said John Slade, BNP Paribas Real Estate chief executive. “We have seen a real move out into the regions, not just by UK money but also overseas investment. Two years ago you couldn’t even find a buyer for some regional offices. The market picked up last year and now yields are falling and are under pressure to fall further.” Darren Yates, partner at Knight Frank, the estate agency, agrees “locations outside central London are now on the radar of international investors”. He cites Manchester and Leeds as being particularly well-placed “due to their very diverse commercial base”. By contrast, Liverpool and Sheffield are seeing less demand, he says, noting that the economies of these two cities are more reliant on a public sector that is facing spending cuts. “We will see yield compression in the next six to 12 months, and the prospect of rental growth in the medium term, perhaps as early as next year,” Mr Yates says. Perhaps most crucially for future prospects, supply remains subdued, with little new space under construction other than in parts of southeast England, which is strongly influenced by the London market. Figures from IPD, the property value benchmarking group, show that the likes of Cambridge, Guildford and Brighton are doing particularly well – partly thanks to their proximity to the capital. Just six speculative office developments are planned for completion in the next two years, according to Knight Frank, all of which are in Manchester, Glasgow or Bristol. The developments will deliver less than 1m square feet of space between them. Manchester is the only regional city to have more than 200,000 sq ft of new space under construction. Rising demand in recent months has eroded an overhang of supply left empty since the start of the financial downturn. So much so that Mr McStay is now forecasting a supply crunch within two years. “In most places there has been no new development at all since 2007. Most cities now have less than 500,000 square feet remaining. That is a problem – you just need one or two big occupiers to come along and that takes up all the available space.” Developers have started to respond. Mr McStay cites schemes in Bristol and Glasgow as the first new supply of the most prized and sought-after “Grade A” space in six years. But the time lag between starting a new development and tenants moving in means that more needs to be done. “Construction takes a minimum of two years, and it can take three to four years depending on . . . planning permission,” he says. There are also still reason for investors to be cautious. While high-quality property is in demand, most regional cities still have some unwanted poorer-quality stock that is unpopular with both occupiers and investors. Birmingham has perhaps the greatest oversupply of office space, according to data from Jones Lang LaSalle, the property group. Its vacancy rate of about 16 per cent is the highest of the UK’s major regional cities, with 3m sq ft remaining empty. “There is a lot of second-hand stock that is almost obsolete,” says Mr McStay. This situation could be eased in the coming months by forthcoming changes to planning laws, which would permit empty office buildings to be converted into housing. Some experts predict that this could help to erode the remaining volumes of secondary- and tertiary-quality stock sitting empty in many English cities. Continue reading
Chinese Investors Target UK Property Market
by Mark Benson on October 19, 2013 In what could be a major development for the UK property market, last week’s trade mission by Boris Johnson and Chancellor George Osborne seems to have attracted the attention of Chinese investors. This comes at a time when more Chinese investors have been signed up to the ongoing ABP’s Docklands regeneration project which is one of the major UK property projects ongoing at the moment. While there has always been genuine interest from Chinese investors toward UK property there is no doubt that interest has increased in light of the trade mission and ongoing relationship between China and the UK. Welcoming Chinese visitors When we look at the trade mission, further Chinese investment in the docklands regeneration project on top of the UK government’s announcement that wealthy Chinese individuals will now find it easier to live in the UK, through simplified immigration procedures, it seems we can expect a wave of Chinese investment in the medium to long term. If you look at many areas of the world, both property and non-property sectors, the Chinese government, Chinese investors and Chinese companies have become ever more prominent. Quote from PropertyForum.com : “Historically the UK property market has been dominated by home owner properties as opposed to rented properties which have often been the mainstay of markets such as the US.” One area which has attracted the attention of massive Chinese investment is South America where the vast majority of governments in the region have financial support programs in place with the Chinese government. Further overseas investment in the UK property market The general consensus of opinion is that the UK property market will move higher in the short to medium term although there is an outside chance we could see the creation of a house price bubble which might hold back short-term performance. It now looks as though Chinese investors could well pick up the slack, from any investors who are perhaps a little concerned about the UK property market, supporting further forward momentum. At this moment in time the main focus of property investment by Chinese entrepreneurs and businesses is mainly in and around London. London has gained a reputation over the last 50 years or so as one of the safest and most lucrative property markets in the world. Indeed in many ways the London property market moves ahead of the overall UK property market, both upwards and downwards, and is seen as an indicator of short to medium term performance across the whole market. Demand outstrips supply While there is no doubt that genuine interest in the UK property market is helping to support forward momentum there is also no doubt that a lack of suitable properties to quench demand is also a major issue. Whether or not some UK property owners will see this recent surge in property prices as a means of downsizing in the short to medium term remains to be seen. While a number may have been in the “negative equity” zone, the current economic situation in the UK will have improved this situation for many. It will be interesting to see whether there is an increase in the supply of properties for sale across the UK, and more predominantly in London, because this will be a major element dictating how far and how quickly UK property prices move. These are certainly interesting times for those with exposure, or those looking for exposure, to the UK property market! Continue reading
