UK PROPERTY INVESTMENT BULLETIN Q Follow the money as every little bit helps.

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1 UK PROPERTY INVESTMENT BULLETIN Q Follow the money as every little bit helps. Summary 2011 was the year of following the money. Both UK institutions and overseas investors were the largest buyers and sellers throughout the year. On the overseas side, the Far East and Middle East investors continued to buy while the Irish investors remained net sellers along with the US and the Germans. The total investment activity for 2011 was 32.63bn, down by minus 14.8% from 38.30bn in UK institutions and overseas remained the main players on both the buy and sell side. For 2011, overseas investors were 35.4% ( 11.52bn) of total purchasing activity, followed by the UK institutions at 28.1% ( 9.16bn). UK institutions purchased less in 2011 than in 2010 (which was 28.9% of total activity bn). Also overseas investors purchased a little less in 2011 ( 11.52bn) than in 2010 ( 12.19bn 30% of total activity). On the sell side, UK institutions had a 27.2% share in 2011 (higher than in 2010 at 19.1%), followed by the overseas investors at 26% (higher than in 2010 at 24.6%). The most favoured sector continued to be offices, seeing a 31% share ( 10.09bn) for 2011, followed by other at 14.7% ( 4.79bn). Throughout the year, Central London remained the favoured location at 44% ( 14.31bn) of total investment activity, followed by UK wide at 14.5% ( 4.72bn). For 2011, the largest net investors were the overseas investors at 3.03bn, followed by the UK private investors at 0.99bn and the UK listed property companies at 0.85bn. UK institutions were net investors at 0.29bn. The biggest net disinvestor was owner occupiers at minus 2.7bn, followed by UK unlisted property companies at minus 1.68bn. Both groups were capitalising on either taking profit and/or acquiring cheaper finance. The total volume for Q was 10.52bn, an increase of 47% from Q of 7.17bn. UK institutions were net disinvestors in Q at minus 1.35bn, the first time since Q3 09. UK listed property companies were also net disinvestors in Q (minus 0.37bn), the first time since Q Overseas investors remained net investors at 1.76bn, an unbroken timeline since Q except for Q

2 For Q4 2011, UK institutions were mainly net investors in retail warehouses and retail while seeing high net disinvestment in offices, followed by mixed use. Overseas investors were largely net investors in industrial and offices but saw net disinvestment in student accommodation. Initial yields across the main sectors stabilised in the fourth quarter 2011, seeing an overall small reduction of 5 bps to 7.46% as the graph below shows. The exception was industrial yields which saw an outward movement (70 bps) to 9.35% from Q3. For 2011, net investment from the overseas side was mainly from the Far East investors at 1.09bn, followed by the Middle East investors at 0.80bn. Offices and mixed uses were the preferred sectors and Central London was the main focus of activity. Ireland continued to be the largest net disinvestor amongst the overseas at minus 3.14bn. Ireland has been a net disinvestor in UK property since Q The Germany was the next largest net disinvestor at minus 0.21bn. The Germans had fund redemption issues. Offices, followed by retail/office mix and student accommodation were the main areas of disinvestment. 2

3 Investment Activity The total investment activity for 2011 was 32.63bn, down by minus 14.8% from 38.3bn seen in UK institutions and overseas remained the main players on both the buy and sell side for the year. In 2011, overseas investors saw 35% of the total purchasing activity ( 11.52bn), followed by the UK institutions at 28% ( 9.16bn). There were 1,344 transactions for the year with the average lot size of 24.28m. Fourth quarter 2011 activity was 10.52bn, an increase of 47% from that seen in Q ( 7.17bn). The average lot size was 33.17m, an increase from that seen in Q of 23.62m. For Q4 2011, the overseas investors took a commanding position of 47.5% of all investment activity, followed by the UK institutions at 16.6% as seen in the graph below. Both groups still comprised almost two thirds of all investment activity which was consistent throughout the year but in varying proportions. The overseas investors mainly purchased offices, followed by industrial; whereas for the UK institutions, the preferred sectors were retail warehouses and offices. For the overseas investors in 2011, the US had the largest share of investment activity at 22% ( 1.71bn), followed by the Far East at 18.1% ( 2.09bn) and the Middle Eastern at 14.9% ( 1.71bn). For the fourth quarter 2011 as the graph below shows, the US were largest investors at 19.8% ( 0.99bn), followed by the Canadians at 16% ( 0.8bn). 3

4 The main sellers in 2011 were the UK institutions at 27.2% ( 8.87bn) of total activity, followed by the overseas at 26% ( 8.49bn). The fourth quarter saw an increase in sales by UK institutions to 3.10bn from the average of 1.92bn over the first three quarters. Overseas investors also increased their sales in 4Q 2011m to 3.2bn, up from the average over the first three quarters of 1.75bn. For Q4 2011, the overseas investors had the largest share of selling activity a 30.7% ( 3.23bn), followed by the UK institutions at 29.5% ( 3.10bn) as the graph below shows. Offices were the preferred sale for both groups, followed by retail/office mix. 4

5 For 2011, Ireland continued to dominate overseas selling at 38% ( 3.2bn) of all overseas selling activity ( 8.5bn). It was followed by the US at 27.2% ( 2.31bn) and the Germans at 11% ( 0.92bn). For Q4 2011, the Irish and the US dominated the overseas sales at 36.8% ( 1.19bn) and 39% ( 1.27bn) respectively as shown in the chart below. For 2011, the main net investors were overseas at 3.03bn, followed by UK private investors at 0.99bn and UK listed property companies at 0.85bn. UK institutions had a low level of net investment of 0.29bn, down from 4.64bn seen in The main net disinvestors were owner occupiers at minus 2.70bn, followed by UK unlisted property companies at 1.68bn. Q saw UK institutions as net disinvestors of minus 1.35bn, the first time since Q as shown in the graph below. They were followed by owner occupiers at minus 0.53bn who had been net disinvestors throughout all of UK listed property companies were also net disinvestors in Q at minus 0.37bn which was the first time after three consecutive quarters of net investment. UK unlisted property companies were net disinvestors of 0.21bn, a continuation of the trend since Q In Q4 2011, there were only two groups that were net investors: overseas and private investors. Overseas investors were net investors of 1.76bn, a positive trend seen since Q except for one quarter of net disinvestment in Q UK private investors also saw net investment of 0.93bn which constituted three quarters of consecutive net investment. 5

6 On the overseas investor side as the graph below shows, Ireland has seen 11 consecutive quarters of net disinvestment with minus 5.33bn to date, of which 3.14bn was in Again, the major net disinvestors were from Western, developed economies (Ireland, Germany and US), where the main net investors were mainly from the growing economies of the Middle East and the Far East. The Canadians have been net investors for the past 8 quarters with a total of 2.35bn seeing 0.76bn in Over the longer term (Q Q4 2011), the Far East were the largest net investors at 4.02bn, followed by the US at 3.34bn and Middle East at 2. 79bn. The biggest net disinvestors over the same period were the Irish at minus 5.33bn. 6

7 Sector and Location For 2011, offices were the preferred sector at 31% ( 10.09bn), followed by other at 14.7% ( 4.79bn) which includes student accommodation, hotels and motor related properties as the graph below shows. The fourth quarter did not change much from this overall picture as seen in the pie chart below. Industrials and offices were favoured more, particularly by the overseas investors and the UK listed property companies. 7

8 For Q4 2011, UK institutions were net investors mainly in retail warehouses and retail; for UK private investors it was student accommodation; for UK unlisted property companies it was retail/office mix and for overseas it was industrial and offices. UK institutions investment in retail warehouses were seen as more of a defensive play for retail exposure. On the sell side for Q4, UK institutions were net disinvestors mainly in offices and mixed use; for UK unlisted property companies it was industrial and shopping centres; for the UK private investor it was leisure; for the UK listed property company it was retail/office mix; for both owner occupiers and overseas it was student accommodation. In 2011, Central London continued to be the most popular location for purchases at 44% ( 14.31bn) of total activity, followed by UK wide at 14.5% ( 4.72bn) as seen in the pie chart below. Q did not really deviate from this overall picture as demonstrated in the chart below. The overseas investors were the main buyers of Central London at 2.79bn, followed UK unlisted property companies at 0.78bn and UK private investors at 0.67bn. UK institutions preferred the south east ( 0.46bn). 8

9 On the sell side for Q4 2011, overseas were the main sellers of Central London at 2.88bn, followed by UK institutions at 1.03bn. UK institutions and UK unlisted property companies had a good coverage of sales throughout the UK. Key Deals The key deals in Q were: 415m purchase by Oxford Properties (Canadian real estate arm of pension fund, OMERS) of Green Park business park in Reading 350m purchase by Malaysian pension fund, Permodalan Nasional Berhad, of Milton & Shire House, London EC2-456,876sqft offices let to Linklaters 314.7m (6.3% IY) purchase by UK Logistics (Jersey) LLP (50/50 jv between SEGRO & Moorfield Real Estate Fund) of UK logistics fund -14 large distribution warehouses. 300m purchase by Blackstone of Triangle Shed Portfolio of 18 properties from London & Stamford m (7% IY) purchase by South African, Nathan Kirsh, of Tower 42 Estate, London EC2 comprising 472,776 sqft of mainly offices. 265m purchase by Blackstone of 17 industrial properties from London & Stamford. 9

10 Looking Forward It is more difficult to find the opportunities as global events colour the prospects across all the asset classes, thus making investors cautious and risk adverse in such an uncertain environment is an election year for at least 8 countries: US, France, Russia, Mexico, China, Taiwan, Egypt and Venezuela which each having their own calling card on the world stage in terms of impact. It is the Chinese year of the dragon which can be quite tumultuous in terms of both the up and down. Low interest rates provide support for property but it all rests on the relative security of the income. In following the money, the places where there is greater economic growth demonstrates the need for a relatively safe haven for those gains which the UK, particularly central London fulfils that role. For the UK domestic investor, the need for income and preservation of capital also continue to be important themes. The degree of overall capital loss forecasts for property in 2012 varies from 0% to 10% which is a much narrower range than for the other asset classes. Dr Karen Sieracki MRICS of Kaspar Associates Ltd David Adams of The Property Archive 10

11 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 11

12 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 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 12

13 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 13