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Commercial Property - UK - July 2017

Published By :

Mintel

Published Date : Aug 2017

Category :

Construction

No. of Pages : N/A

The overall outlook for the commercial property market is cautiously optimistic considering current economic and political uncertainties. In the short term, the market is set to be supported by continued occupier demand in key sectors, especially the industrial sector, and a relatively robust economic performance despite Brexit concerns. The investment market also continues to benefit from the lower value of sterling and low interest rates.
Table of contents

EXECUTIVE SUMMARY
The market
Brexit concerns impact commercial property market in 2016
Figure 1: Value of UK commercial property market, 2010-16
Investors turn more risk adverse in 2016
Figure 2: Investor-owned share of UK commercial property market, 2012-16
Retail represents largest sector of commercial property market
Offices represented strongest growth sector over the last five years
Industrial property outperforms all other major sectors in 2016
Investors continue to be attracted to alternative assets
Outlook for commercial property market is cautiously optimistic
Figure 3: Segmentation of the UK commercial property market, by sector, 2012-16
Market factors
Record low interest rates provide positive impetus for investment market, but Brexit-induced uncertainty makes investors more risk-adverse
Rising inflation and continued wage squeeze to impact consumer spending in 2017
Latest business rates revaluation has biggest impact on London retail and office sectors
Companies
Overseas investors represent the largest investor type in the UK commercial property market
Institutional investors represent the second largest investor type
Real Estate Investment Funds (REITs) dominate shopping centre sector
Figure 4: Holdings in commercial property market, by investor type, 2015
What we think
KEY INSIGHTS
What is the impact of Brexit on the UK commercial property market?
What is the short-term outlook for the commercial property market?
Where is the investment market headed?
Why are alternative commercial property assets becoming more popular with investors? Which assets attract the most attention?
INTRODUCTION
Definitions
Methodology
Abbreviations
Market positioning
The commercial property performance cycle
UK ECONOMY
Overview
Figure 5: Forecast GDP development 2017-21
Figure 6: UK GDP quarterly development, 2004-17
Figure 7: UK GDP in economic downturns and recoveries since 1979
Inflation
Interest rates
House prices
Figure 8: UK House price changes, 2006-17
Consumer spending
Manufacturing
Figure 9: UK manufacturing, 2014-17
Business investment
Figure 10: UK GFCF 2003-17
Imports
Exports
MARKET FACTORS
Key points
Economic factors
Record low interest rates provide positive impetus for investment market, but Brexit-induced uncertainty makes investors more risk-adverse
UK Purchasing Manager Index (PMI) for Services Industries
UK Manufacturing Purchasing Manager Index (PMI)
Retail sales and rise in online sales
Figure 11: Growth of value of retail sales at current prices seasonally adjusted, 2010-16
Other factors
Impact of planning laws on commercial property supply
Supply and demand factors
Latest business rates revaluation has biggest impact on London retail and office sectors
Return on property investment
Figure 12: Annual property returns, by sector, 2013-16
Government Hubs programme to boost regional office take-up in the short term
New stamp duty rates for commercial property
Non-residential property transactions
Figure 13: UK non-residential property transaction completions, by country, 2012-16
Figure 14: UK non-residential property transaction completions, 2012-16
Private commercial construction output
Figure 15: Long term trend in private commercial construction output in Great Britain, 1970-16
Figure 16: Analysis of private commercial construction in Great Britain, by type, 2012-16
Private industrial construction output
Figure 17: Long term trend in private industrial construction output in Great Britain, 1970-16
Figure 18: Analysis of private industrial new construction work in Great Britain, by sector 2012-16
MARKET SIZE & SEGMENTATION
Key points
Overview
London offices, shopping centres and retail warehouses now almost entirely owned by investors
Alternative commercial property attracting increased interest from investors looking for secure, long-term income
Figure 19: Value of UK commercial property market, 2012-16
Figure 20: Value of UK commercial property market, 2009-16
Figure 21: Investor share of UK commercial property market, 2012-16
Figure 22: UK commercial property floorspace and rental value, 2008-15
Market segmentation
Segmentation by sector
Figure 23: Segmentation of the UK commercial property market, by sector, 2012-16
Figure 24: Sector share of investor-owned commercial property stock, 2016
Segmentation by investor-type
Figure 25: Holdings in commercial property market, by investor type, 2014-16
Figure 26: Investor commercial property market, by sector, South East and rest of UK, 2016
OFFICE SECTOR
Key points
Overview
Overseas investors drive growth in London office sector
UK prime offices continued to attract interest from foreign buyers during 2016, supported by a weaker pound sterling
Shift away from owner-occupied offices
Investors increasingly looking to prime regional office markets for investment opportunities
London offices
Rising speculative developments likely to slow as developers cut speculative building due to market uncertainty
Figure 27: Capital value of the UK office market, 2012-16
Figure 28: UK offices market, by region, 2016
Figure 29: Office property transactions in Great Britain, 2013-17
Figure 30: Office property transactions by investor type, year-to-date 2017
Figure 31: UK office floorspace and rental value, 2009-15
RETAIL SECTOR
Key points
Overview
Growth in online and multichannel retail drives structural change in retail property market
Investor activity in high street retail up in 2016, but wanes in shopping centres and retail warehouses
High street retail property owners continue to face considerable risks
Central London retail property market attracts increased interest from overseas buyers
Shopping centre investment activity rebounded in final quarter of 2016
Shopping centre development dominated by extensions
Occupier demand in retail warehousing driven by bulky goods sector
Investors return to supermarket property after a few years of muted activity
Figure 32: Capital value of the UK retail property market, 2012-16
Figure 33: UK retail property market, by sector, 2016
Figure 34: Retail property transactions in Great Britain, 2013-17
Figure 35: Shopping centre property transactions by investor type, year-to-date 2017
Figure 36: Retail warehouse property transactions by investor type, year-to-date 2017
Figure 37: Shop/supermarket property transactions by investor type, year-to-date 2017
Figure 38: UK retail floorspace and rental value, 2009-15
INDUSTRIAL SECTOR
Key points
Overview
Industrial & logistics represents one of the most attractive sectors for investors
Industrial and logistics property sector continues to be plagued by constrained supply
Figure 39: Industrial speculative development under construction, May 2012- January 2017
Figure 40: Capital value of the UK industrial property market, 2012-16
Figure 41: UK industrial property market, by region, 2016
Figure 42: Industrial property transactions in Great Britain, 2013-17
Figure 43: Industrial property transactions by investor type, year-to-date 2017
Figure 44: UK industrial floorspace and rental value, 2009-15
OTHER COMMERCIAL SECTOR
Key points
Overview
Investor confidence has returned to hotel sector
London accounts for half of all UK hotel transactions in 2016
Branded budget hotels continue to drive hotel developments in major cities across the UK
Figure 45: Active hotel development pipeline by grading, Q4 2016
Diverse leisure sector remains popular with investors, attracted by secure long-term income opportunities
Figure 46: Capital value of the UK other commercial property market, 2012-16
Figure 47: UK other commercial property market, by sector, 2016
Figure 48: Property transactions in the leisure sector in Great Britain, 2013-17
Figure 49: UK other commercial floorspace and rental value, 2009-15
REGIONAL ANALYSIS
Key points
Regional Analysis of Non-domestic Properties in England & Wales
Figure 50: Number of non-domestic rateable properties in England & Wales, by sector and region, as at 31 March 2016
Figure 51: Rateable value of non-domestic properties in England & Wales, by sector and region, as at 31 March 2016
Regional analysis of commercial property transactions
Figure 52: Commercial property transactions in Great Britain, by region, 2013-17
Figure 53: Regional importance in commercial property transactions, 2014-16
MARKET TRENDS
Key points
Development of commercial property yields
Figure 54: Prime market yields, by sector, 2014-17
Rental Price Developments
Figure 55: Prime office rents in the UK, December 2011-December 2016
Figure 56: Prime retail rents in the UK, December 2011- December 2016
Figure 57: Prime industrial rents in the UK, December 2011- December 2016
Trends in average lease lengths
Figure 58: Average length of leases, by tenant type, 2016
Shift from owner-occupied towards rented commercial property
Commercial property development activity
Figure 59: Commercial development activity, 2010-16
Trends in commercial property lending
Commercial property lending activity remains steady in 2016, but with increasing caution among lenders
Figure 60: Outstanding debt secured by commercial property lender, by lender type, 2016
Following two buoyant years for new loan originations, 2016 saw a decline in new loans on commercial property
Figure 61: Allocation of new loans originations, by lender-type, 2016
Loan-to-value ratios continue to edge downwards in 2016
INDUSTRY STRUCTURE
Key points
Overview
Overseas investors drive value growth of commercial property sector
Figure 62: Holdings in commercial property market, by investor type, 2016
Figure 63: Biggest investor type in each commercial property sector, 2014
REITs
Overseas investors
Figure 64: Overseas holdings in commercial property market, by investor type, 2015
Institutional investors
Figure 65: Holdings in buildings, property, land and new construction work by institutional groups, 2010-15
Figure 66: Net investment in buildings, property, land and new construction work by institutional groups, 2011-16
Company profiles
BRITISH LAND
Company strategy
British Land cuts exposure to speculative developments post Brexit vote
Figure 67: Financial analysis of British Land, 2012-16
LAND SECURITIES
Company strategy
Figure 68: Financial analysis of Land Securities, 2012-16
GREAT PORTLAND ESTATES
Rental value growth slows in London office market
Company strategy
Figure 69: Financial analysis of Great Portland Estates, 2012-16
HAMMERSON
Company strategy
Figure 70: Financial analysis of Hammerson, 2012-16
INTU PROPERTIES
Company strategy
Figure 71: Financial analysis of Intu Properties, 2012-16
DERWENT LONDON
Recent acquisitions and disposals include:
Company strategy and outlook
Figure 72: Financial analysis of Derwent London, 2012-16
A & J MUCKLOW GROUP
Company strategy and outlook
Figure 73: Financial analysis of A & J Mucklow Group, 2012-16
HANSTEEN HOLDINGS
Company strategy
Company performance
Figure 74: Financial analysis of Hansteen Holdings, 2012-16
Figure 75: Turnover analysis of Hansteen Holdings, by geographic segment, 2012-16
DAEJAN HOLDINGS
Company strategy
Figure 76: Financial analysis of Daejan Holdings, 2012-16
SEGRO
Company strategy
Figure 77: Financial analysis of Segro, 2012-16
SHAFTESBURY
Company strategy
Figure 78: Financial analysis of Shaftesbury, 2012-16
WORKSPACE GROUP
Company strategy
Figure 79: Financial analysis of Workspace Group, 2012-16
BRUNTWOOD
Company strategy
Figure 80: Financial analysis of Bruntwood, 2012-16
LONDONMETRIC PROPERTY
Company strategy
Figure 81: Financial analysis of LondonMetric Property, 2012-16
GROSVENOR GROUP
Company strategy and outlook
Figure 82: Financial analysis of Grosvenor Group, 2012-16
STANDARD LIFE INVESTMENTS (HOLDINGS)
Company outlook
Figure 83: Financial analysis of Standard Life Investments (Holdings), 2011-15
LEGAL & GENERAL PROPERTY
Company strategy
Figure 84: Financial analysis of Legal & General Property, 2012-16
M&G REAL ESTATE
Figure 85: Financial analysis of M&G Real Estate, 2011-15
MARKET FORECAST
Key points
Commercial and industrial construction output forecast
Figure 86: Forecast private commercial construction output in Great Britain, 2017-21
Figure 87: Forecast of private commercial construction in Great Britain, by sector, 2017-21
Figure 88: Forecast private industrial construction output in Great Britain, 2017-21
Figure 89: Forecast of private industrial new construction work in Great Britain, by sector 2017-21
Commercial property market forecast
Outlook for commercial property market remains cautiously optimistic despite concerns following Brexit vote
Outlook for investor demand remains positive, with wider UK market receiving more attention
Investors are shifting focus to long-term, secure, income-producing assets as they turn more risk-adverse
Investor appetite for alternative assets remains strong
Core regional centres attract increased investor interest
Northern Power House and Midlands Engine to support regional growth
Figure 90: Forecast of UK commercial property market, 2017-21
Figure 91: Development of the UK commercial property capital value, 2012-16 (historic) and 2017-21 (forecast)
Figure 92: Projected investor share of UK commercial property market, 2017-21
Market forecast segmentation
Figure 93: Forecast segmentation of the UK commercial property market, 2017-21
Figure 94: Forecast segmentation of the UK commercial property market, 2017-21
Key trends by sector
Offices
Retail
Industrial
Other commercial property
FURTHER SOURCES & CONTACTS
Trade associations and bodies
British Property Federation
The Association of Real Estate Funds
British Council for Offices
The Commercial Real Estate Finance Council Europe
The Investment Association
The Investment Property Forum
Trade exhibitions and conferences
RICS Commercial Property Conference 2017
MIPIM UK 2017
Trade magazines
Estates Gazette
Property Magazine International
Property Week
Property Wire

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