UK PROPERTY INVESTMENT BULLETIN Q Movin on out.

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1 UK PROPERTY INVESTMENT BULLETIN Q Movin on out. Summary In Q domestic UK investors spent 65% of their total 5.79bn purchases outside Central and Outer London with the most popular regions Midlands, South East and UK wide as seen in the graph below. Total UK investment in Q was 11.42bn, less than the 15.8bn seen in Q but more than the 11.35bn seen for the same time last year (Q1 2013). UK institutions and overseas investors remained the largest investors in Q (27% - 3.1bn and 49% - 5.6bn respectively) which have been the case since 2009 as illustrated in the chart below. 1

2 UK institutions and overseas investors were also dominant sellers in Q (21% - 2.4bn and 35% bn respectively) which has been the trend since 2011 as seen in the chart below. Overseas investors were the largest net investors in Q at 1.6bn which has been the case since 2007 except for 2010 when UK institutions were the biggest. UK institutions were also net investors in Q at 0.7bn for the third consecutive quarter. 2

3 Offices remained the favourite sector in Q at 40%, followed by other at 15% and shopping centres at 13% as shown in the pie chart below. Central London continued to be the preferred location in Q at 31% but not to the extent it had been previously (Q at 45%, Q at 55%, Q at 55%). Outer London followed at 18%, then the Midlands at 13% and South East at 11% as seen in the pie chart below. This was the first time since Q with the Midlands being more popular than the South East. Central London has remained the dominant location since

4 The average initial yield fell in Q by 41bps to 7.07% as seen in the chart below. All other sector initial yields compressed except for retail warehouses. Retail initial yield saw the greatest compression of 91bps in Q followed by office initial yield compression of 73bps and industrial initial yield compression of 59bps. The search for higher yield continued to be an important theme as shown in the two graphs below. 4

5 The average initial yield in the other UK regions looked more attractive as UK domestic investors generally welcomed better value than that seen in the low yields for Central London. Q UK Investment Q investment volume was 11.4bn, not as high as Q of 15.6bn, but the highest Q1 level since Q Overseas investors continued to be the largest investors at 49% ( 5.6bn), followed by UK institutions at 27% ( 3.1bn) which has been consistent since the beginning of The main overseas investors in Q1 were the US at 30% ( 1.7bn) followed by the Far East at 28% ( 1.6bn). This was the first time the US were the main overseas investors since Q

6 On the sell side for Q1 2014, the overseas investors were the main sellers at 35% ( 4.03bn) followed by the UK institutions at 21% ( 2.4bn). The main overseas sellers in Q continued to be the US at 44% ( 1.22bn), followed by the Middle East at 13% ( 0.4bn) as shown in the graph below. This was the first time that the Irish were not in the top three seller category since The biggest net investors in Q were the overseas investors st 1.6bn, followed by UK REITS at 0.8bn and UK institutions at 0.7bn and. This was the third consecutive quarter of net investment for both UK institutions and UK REITS. For the overseas investors, it has been 21 consecutive quarters of net investment. The main net overseas investors in Q continued to be the Far East ( 1.4bn). The US followed at 0.5bn with the Israelis at 0.4bn as shown in the graph below. 6

7 The largest net disinvestors in Q were UK unlisted property companies at minus 1.04bn, followed by UK private investors and owner occupiers both at minus 1.0bn. It was the fifth conssecutive quarter of net disinvestment by owner occupiers and the fourth consecutive quarter of net disinvestment for UK unlisted property companies. Both wanted to crystllise capital gains. The majority of overseas net disinvestment in Q was the Irish at minus 0.2bn and the Canadians at minus 0.1bn as shown in the chart above. The Irish continued to net disinvest for 20 consecutive quarters although the amount reduced. On the buy side for Q1 2014, UK institutions mainly purchased offices ( 1.0bn) and industrial ( 0.5bn). UK REITs were main purchasers of shopping centres ( 0.8bn). Overseas investors preferred offices ( 2.8bn) and retail ( 0.5bn). On the sell side for Q1 2014, UK institutions sold offices at 1.1bn. Selling the office sector was also important for overseas investors ( 2.03bn), UK private investors ( 0.5bn) and UK unlisted property companies ( 0.41bn). UK unlisted property companies had the widest sector spread for sales. On the buy side for Q1 2014, UK institutions continued to focus their activity outside Central and Outer London to the UK regions of South East, South West, East Anglia and Scotland. Overseas investors mainly concentrated on Central London, Outer London and Yorkshire. On the sell side for Q1 2014, UK institutions mostly sold Central London, South East and UK wide. For the overseas investors it was Central London, Outer London and Midlands. 7

8 Key Deals Q m purchase by China Investment Corporation of Chiswick Park from Blackstone m (5.21% IY) purchase by Intu of 50% stake in Merry Hill Shopping Centre, Dudley from Westfield Group. 400m purchase by Israeli investor, Teddy Sagi, of 50% stake in Camden Stables Market & Hawley Wharf, Camden from consortium including Richard Caring & Chelsfield m purchase by Intu of Westfield Derby Shopping Centre from Westfield Group. 310m (4.8%) purchase by Tishman Speyer of Holborn Place, EC1 offices let to Sainsbury from Union Investment Real Estate. Looking Forward With buoyant UK economic growth forecast, occupational demand for property is expected to continue together with rental growth. The search for higher yield will remain the main focus for UK domestic investors as they look for opportunities outside London and parts of the South East. As QE remains in the frame, the search for higher yield becomes more important as also seen in the equity and bond markets. The worry here is how far property pricing will be stretched as already seen particularly in Central London together with other areas around the South East with prices back to pre-global financial crisis levels. There is strong demand for both safe and risky UK property opportunities which are part of a trend where QE has been implemented in the mature Western economies as well as Japan. How this can be navigated is debatable as property prices continue to rise across the spectrum. There is perhaps some cushion remaining in secondary UK property but this is likely to disappear by the end of this year. As the QE exit begins, it could help to slowdown some of these runaway prices. 8

9 DEFINITIONS & METHODOLOGY SOURCE OF DATA The data is derived from a wide range of research involving cross-referencing of information from property press, auction results, agents letting and sales particulars, Land Registry, Company and Fund reports, company websites, press releases and direct research. The data from 3 rd parties are deemed to be reliable and most transaction records are confirmed by two or more independent sources. We cannot, however, guarantee accuracy and the data is subject to future amendments. TRANSACTIONS The purchase of a property or a number of properties in a single transaction such as a shopping centre or an industrial park or a portfolio (see def. below) of properties. Interests include freehold, long leasehold or virtual freeholds for investment and owner occupation. With company takeovers, mergers and swaps only property assets are included. PRICE For this exercise transactions acquired for below 1m are not included. INITIAL YIELD the initial return on income at purchase as reported by two or more reliable sources. RENT PER SQ FT As reported ZONE A As reported AVERAGE the arithmetic method as opposed to the Weighted average DATE The date of completion as verified by The Land Registry or when the transaction was reliably reported and confirmed by at least two independent sources. QUARTER DATES We have split the data by quarters; 1 January to 31 March, 1 April to 30 June, 1 July to 30 September and 1 October to 31 st December. PROPERTY USES Offices Mainly used for Class B1 office use including business parks and Science Parks with an element of Research and Development space. Buildings which have a significant proportion of retail space are classified Retail/Offices and those that have a significant proportion of industrial space are classified Industrial/Offices Retail Use Classes A1, A2 (financial services such as Estate Agents) and A3 (restaurants). Also includes supermarkets and superstores and out of town shopping parks and factory outlet centres where non bulky goods are sold predominately Shopping Centres Includes regional shopping centres and centres over 20,000sqft but does not include parades or arcades 9

10 Retail Warehouse Includes usually large units selling bulky non food goods in out of town parks and standalone units Industrial Includes B8 distribution warehouses as well as B2 manufacturing buildings and Trade Counter Uses and Self Storage Leisure Health Clubs, Bingo, Leisure Parks, Cinemas, bowling alleys etc. Please note it does not include hotels or pubs which are classified separately or restaurants (which are classified retail) Mixed Where there are more than 2 main uses such as a property that comprises retail, offices, leisure and residential uses Portfolio Where two or more distinct properties are bought of more than two sectors. Where a portfolio comprises buildings of the same uses such as offices the transaction will be placed under that sector rather than Portfolio Motor Related Usually car showrooms, MOT and tyre and exhaust centres etc. Not petrol station which are classified separately Medical Uses Doctors, Dentists, surgeries etc Student Accommodation Primarily residential use for students in buildings held as investments Nursery Care homes and Nursing Homes INVESTORS Institutions Pension funds, property unit trusts, unit trusts, insurance companies etc. Also UK Government, County and Local Councils. Property Companies Non quoted UK registered companies PLC Property Companies Property companies quoted on the London Stock Exchange, AIM and OFEX Private Investors UK based including syndicates and banks and financial institutions and private equity firms acting for private investors Owner Occupiers Companies that have acquired property primarily for their own occupation Joint Ventures and Limited Partnerships An apportionment will be made between different types of investor where known 10

11 Not Known There are many transactions where it is difficult to identify the purchaser since many will be held in offshore registered companies and in subsidiary companies but we make every effort to identify ownerships through research including the Land Registry. Where it is not possible to verify ownership we categorise ownership as not known. Overseas Investors This does not include UK based investors who have financial backing from overseas companies. We have split overseas investor into the most active; Irish, German, Middle East, European, Scandinavian, USA, Canadian, Israeli, Far East, Australian, Russian, Indian, South African. LOCATION Central London WC, W1, W2, W6, W8, W11, SW1, SW3, SW6, SW7, SW10, SE1, NW1, N1, EC1, EC2, EC3, EC4, E14 (Canary Wharf) Outer London London Boroughs outside Central London including those in Surrey, Kent, Essex, Middlesex, Hertfordshire. South East Counties (other than those Boroughs in Outer London) of Surrey, Kent, East Sussex, West Sussex, Essex, Hertfordshire, Buckinghamshire, Berkshire, Oxfordshire, Hampshire. Also Channel Islands. South West Dorset, Devon, Cornwall, Wiltshire, Somerset, Bristol West Midlands Birmingham, Warwickshire, Herefordshire, Worcestershire, Shropshire, Staffordshire, Gloucestershire East Midlands Northamptonshire, Leicestershire, Nottinghamshire, Derbyshire, Bedfordshire East Anglia Suffolk, Norfolk, Cambridgeshire, Lincolnshire Wales Scotland North West Manchester, Liverpool, Lancashire, Cheshire, Cumbria. Also Isle of Man Yorkshire North East Newcastle, Durham, Tyneside, Northumberland Northern Ireland 11