Mintel Reports Brochure

Commercial Property - UK - July 2017

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

The overall outlook for the commercial property market is cautiously optimistic considering current economic and political uncertainties.”

– Claudia Preedy - B2B Analyst

This report looks at the following areas: BUY THIS

• What are the likely implications of Brexit on the UK commercial property market? REPORT NOW • How have key sectors of the commercial property market performed over the last few years? • Who are the biggest investor types in the key sectors of the commercial property market? VISIT: • Which sectors of the market are most attractive to investors? store.mintel.com • Where is the market headed?

In the short term, the market is set to be supported by continued occupier demand in key sectors, CALL: especially the industrial sector, and a relatively robust economic performance despite Brexit concerns. EMEA The investment market also continues to benefit from the lower value of sterling and low interest rates. +44 (0) 20 7606 4533

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This report is part of a series of reports, produced to provide you with a DID YOU KNOW? more holistic view of this market

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

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The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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:

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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

The above prices are correct at the time of publication, but are subject to Report Price: £995.00 | $1288.43 | €1182.46 change due to currency fluctuations.

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 Trade exhibitions and conferences Trade magazines

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