Commercial & Residential Market Update

Q1 2019

Market Update Q1 2019 | Contents

01 The Economy

02 West End Letting Market

03 West End Investment Market

04 City and City Fringe Letting Market

05 City and City Fringe Investment Market

06 National Investment Market

07 Commercial Auction Market

08 Business Rates

09 Residential Development Market

10 Residential Investment Market

11 The Build to Rent Market

12 Residential Auction Market

Market Update Q1 2019 | Economic Overview

The political stalemate continues over Brexit, Goldilocks zone, not too hot to create inflation and with the withdrawal date now extended warranting a rate rise, and not too cold risking to 31 October 2019 this could leave us with a a recession. Summer in limbo as the uncertainty remains. Parliament has so far failed to find an answer In terms of the real estate markets, both and as we approach the 3rd anniversary of the residential and commercial, these remain Brexit vote there is little clarity over the way active but thinner on the whole with many forward and the nature of our future relationship participants on the sidelines watching and with the EU. It is however possible that a softer waiting for the uncertainty to pass. The political consensus will emerge. residential market is tight and despite the most recent ONS statistics for February Meanwhile despite these challenges and a showing house price growth of 0.6% in global slowdown the UK economy paces February, the lowest since September 2012 onward. The economy is growing and, despite and a fall in , there is a growing the cautious forecasting, economic progress forward view amongst the investment is being made. The Government expects community that we are at, or near, the growth of 1.2% for 2019 and 1.4% for 2020 bottom. which is fairly uninspiring but with the possibility of perhaps a slight bounce if a consensus is In general terms, there are many transactions reached and a Brexit deal is finally done. occurring, often underpinned by sturdy occupational markets or discounted pricing Whilst economic growth is on the low for opportunity and risk (particularly in the side other indicators in early 2019 are retail sector) and life carries on. The Allsop mildly positive. According to the ONS, teams, across the board, remain very busy. unemployment fell to 1.34 million, or 3.9%, in the 3 months to February which is the lowest rate since 1975. Wage growth continues at an estimated 3.4% and inflation has fallen again to 1.9% in March easing the income squeeze. The upshot for interest rates is benign with expectations for no change to the current rate Whilst economic growth is on the low of 0.75% for now and a stable outlook. So in general terms, Brexit aside, UK plc is faring ok, and in reality the economy is not far from the side other indicators in early 2019 are mildly positive

| Market Update Q1 2019 Market Update Q1 2019 | West End Letting Market

The opening quarter of 2019 has undoubtedly combined total of 150,000 sq ft of new felt like a more restrained West End leasing commitments at 25 Wilton Road and 127 market, with many small and medium sized High Street. businesses notably exhibiting more trepidation about committing to new, traditionally leased The vacancy rate in the West End remains office spaces. As such, the number of stable at 4% of total stock. Whilst we are not transactions completed this quarter has been anticipating any rental growth this year it is amongst the lowest we have seen for the clear that current and impending supply will last five years. However, this continues to sit not be able to keep pace with existing demand contrary to the statistics for the amount of levels and as such a shortage of supply of space let, with larger space takes continuing to Grade A office space should result in rental dominate the market. The trend for larger Tech/ increases moving forward into 2020 and 2021. Media organisations and Serviced Office space providers to secure new leases has continued. These occupiers are seemingly undeterred by the current political uncertainties having taken over 50% of space taken in Q1 (30% and Overall take up 20% respectively). The remaining 50% has been evenly spread amongst the Financial, for the quarter Government and Energy sectors. Overall take up for the quarter totalled c 1.1M sq ft totalled c 1.1M and the amount of space under offer remains substantially above the long term average. As such it is reasonable to assume that leasing sq ft and the activity should continue apace into the second quarter of the year and in the event of more amount of confidence returning to smaller occupiers as a result of Brexit certainty, take up figures could space under improve dramatically.

Examples of these larger transactions offer remains undertaken this quarter include Sony securing a substantial pre-let in Kings Cross at S1, 4 substantially Handyside Street of 125,000 sq ft, Facebook securing an additional 175,000 sq ft in Regents above the long Place, NW1 and Spaces (Regus) taking a term average

| Market Update Q1 2019 Market Update Q1 2019 | West End Investment Market

For the first quarter 2019, the West End team to investing, domestic and European investors recorded a total of £1.0Bn either exchanged or have sought to capitalise on the absence of this exchanged and completed in 19 transactions. overseas competition in the market and this quarter This is broadly in line with Q1 last year, and 2018 accounted for 14 of the 20 transactions. Investors have significant finished with a relatively strong investment volume of £7.6Bn across 130 transactions, significantly In terms of supply, there were over 20 sales capital allocations ahead of the £6.8Bn 10 year average we have launched during the first quarter, amounting to just recorded. However, 2018 was some way behind under £1.0Bn of supply. We interpret there being at for London, but are the peak 2013 - 2015 years (2015 saw a record least a further £3Bn of stock either already available £9.3Bn) perhaps suggesting that, coupled with or technically withdrawn but where the vendor the Brexit investment slowdown, we are reaching would still sell. largely waiting for a a natural end to the investment cycle as, globally, a general slowing of the economy is experienced. We highlighted in our last market report the trend resolution on Brexit for a higher than usual proportion of buildings Despite this, similarly to the City market, momentum built towards the end of the quarter in being freehold or virtual and this has continued into before committing to the West End with March transacting the highest 2019 – virtually all the buildings launched this year figures of the quarter in terms of both number of have been freehold - symptomatic of much of the transactions transactions and transaction volume, suggesting investment demand coming from overseas and that irrespective of the Brexit uncertainty, and private investors. its eventual outcome, London remains high on an investor’s wish-list due to the market’s At this point, it is impossible to predict whether transparency and liquidity fundamentals. 2019 will see strong volumes particularly in light of the Brexit ‘flextension’ failing to be a real game The dominance of large transactions has changer to the current uncertainty. Certainly there is continued with two transactions making up nearly investment stock available to buy, and through our half the Q1 volume: Allsop represented Columbia relationships with Citi Private Bank largely targeting Threadneedle in the c £200M sale to Ashby Middle East capital, plus Millennium Group in Hong Capital of 127 and The Kong focused on Asia capital, we are aware of a Kensington Arcade, and M&G purchased North large number of investors with capital allocations Wharf Gardens (Hotel) in Paddington for c £205M. for London, and the wider UK. London investment returns look relatively attractive compared to Whilst the market does feel relatively quiet in many key global “gateway cities” but the Brexit terms of demand from overseas investors, who uncertainty does continue to constrain buyers. are largely adopting a “wait and see” attitude

| Market Update Q1 2019 Market Update Q1 2019 | City and City Fringe Letting Market

Whilst there has been continued uncertainty Liverpool Street. We Work also continued its over the economy with Brexit now extended to expansion in the City Core for its HQ concept 31st October 2019, City office demand remains taking 34,000 sqft at Dixon House, 1 Lloyds strong for both the City core and City fringes. Avenue (Allsop advised MAPFRE), together with 12 Moorgate, Minster Court and 40 Mitre Employment remains high although growth Square, all in the last month. is likely to reduce over the next few years with reduced corporate expansions Total take up for the quarter was 1.2M sq ft, and consolidation. Outside of London down on Q4 2018 which stood at 1.8M sq ft In the run up to Britain’s manufacturing and retail employment has been and the long term average of 1.4M sq ft. 39% hit hard in recent months. of take up was for new Grade A stock. ‘divorce;’ with Europe, now

The global drive to develop ‘Artificial Take up in the second quarter is expected Intelligence’ a skillset routed in the emerging to increase due to the significant number of extended to 31st October companies based in the City fringes continues occupational enquiries, demand and under to lead to further demand from the technical offers. These include Quilter, 100,000 sq ft 2019, City office demand and media industries. under offer at Senator, Smith and Williamson, 80,000 sq ft under offer at Gresham St Speculative development finance has been Pauls, and BT rumoured to have shortlisted 1 remains strong for both the restricted in the past 2 years which has Braham Street for up to 200,000 sq ft. reduced new development completions and City core and City fringes led to a reduced supply pipeline for 2019 and Supply in the City currently stands at 6M 2020. sq ft approximately 6% down on the 5 year average of 6.45M sq ft. The vacancy rate for The City core market started slowly with very the City is 4.4% with Grade A stock as low as few large transactions taking place in January 2.2%. We have witnessed further record breaking currently under offer to secure the upper and February 2019. The largest deals which rents in Shoreditch and the City fringe with floors of Chapter House and Totally Money did take place were Bulb, an extraction and The development pipeline remains extremely Travelex paying £83.50 psf on the 17th floor has recently signed on the first floor at utility company growing from just 10,000 sq low for 2019/2020 and many occupiers are of The Bower and Tradedesk placing 3 floors £67.50 per sqft for 7,500 sq ft. ft in the last few years, acquiring 76,000 sq finding it challenging to secure good quality under offer at Bartholomew Close in the City ft at 155 , and Philip Morris who sub 10,000 sq ft space in the City core. in the low £80’s per sqft. acquired 48,000 sq ft in 1 New Change at £61 per sqft. A strong finish to the Quarter Shoreditch and the City Fringe supply Pre-lets are taking place for refurbished stock has been witnessed by the signing of Peel remains extremely tight with vacancy rates of in the late £60’s per sqft for mid level floors Hunt for 41,000 sq ft (advised by Allsop) sub 4.0% and Grade A stock below 3.0%. close to Old Street roundabout. Ebiquity is and Millbank Tweed for 70,000 sq ft at 100

| Market Update Q1 2019 Market Update Q1 2019 | City and City Fringe Investment

Whilst the City investment market experienced The average deal size for Q1 2019 was £80M, robust turnover figures for Q4 2018, since the illustrating the continued demand for larger latter part of Q4, Britain is very much in the ‘eye £50M+ lot sizes. Allsop City investment team of the storm’ in terms of the political uncertainty sold the Grade II listed Ibex House, 42-47 created by ongoing Brexit deliberations. This Minories, EC3 on behalf of two Israeli insurance resulted in a particularly subdued start to Q1 companies, for £121.25M/ £654 per sqft/ 5.21% 2019, with momentum building towards the NIY to a joint venture between Dukelease and Our City Investment Team has end of the quarter. Henderson Park. The iconic Grade II listed freehold comprises 185,360 sq ft of office, Our City Investment Team has recorded a restaurant, and gym accommodation, and is recorded a total of £2.319Bn total of £2.319Bn exchanged or completed multi-let to 28 tenants offering various asset in 29 transactions during Q1 2019; which is management opportunities. Allsop was also exchanged or completed in 29 approximately 12% down on Q1 2018, but still responsible for the successful sale of 9 Prescot above the long term average of circa £2Bn. Street, E1 on behalf of Derwent London and transactions during Q1 2019 These figures are somewhat distorted by Citi Lasalle IM, to CLS Holdings Plc for £53.8M/ Group having exchanged contracts to purchase £555 per sqft / 4.46% NIY, another value add their Canary Wharf headquarters at 25 Canada opportunity which experienced strong interest Square, E14 for approximately £1.1Bn, in levels in the marketplace. Another significant Q1 what was by far the largest deal of the quarter. transaction was Brockton Everlasts’ purchase Removing this deal from the total turnover of 169 Union Street, SE1 for £100M/ £854 per sqft/ 4.25% NIY. The freehold headquarters demand for these type of assets, remains highly Buoyed by a strong occupational market, results in Q1 2019 being approximately 54% building occupies a 0.84 acre virtual island competitive historically. and given the hugely diversified nature of the down on Q1 2018 and 39% below the long site and offers significant refurbishment/ investor base (28 different nationalities in 2018), term average. This perhaps presents a more redevelopment opportunities in the long term. The most active investors in 2018 were South prime City of London yields remain at their accurate picture of the subdued nature of the Korean investors, who have largely withdrawn historic low of 4.00% - 4.25%. However, the City market amongst a backdrop of Brexit With widespread reports of redemptions towards from the London market, seeking investments gap for less prime well-let assets continues to uncertainty. However, whilst a number of the end of 2018, many assets have been sold elsewhere in Europe. For many overseas widen and if market sentiment deteriorates, investors are adopting a more cautious “wait by retail funds in Q1 2019 and we expect this to investors, it is a case of when, rather than if, given ongoing Brexit negotiations, the prime and see approach”, many domestic buyers are continue into Q2 2019, as the retail funds seek they return to the City market, monitoring the City yield will be under significant pressure to taking advantage of securing deals in slightly to capitalise on their most liquid City assets. political situation with a focus on potential move out for the first time in a number of years. less competitive market. With stock levels This was demonstrated in Nuveen’s sale of 169 impact on currency. Consequently, UK Similarly, if a clear path regarding Brexit is found increasing significantly towards the end of the Union Street, SE1 but also in Aberdeen Standard investors have accounted for approximately in the short term, we anticipate a number of quarter, we predict higher levels of transactional sale of 85-89 Southwark Street, SE1 to Royal 60% of investment turnover in Q1, followed investors will return to the market as London’s activity in Q2 2019, particularly if fears of a ‘no London Asset Management for c. £37.5M/ by Asian investors who have accounted for safe haven status and transparent legal system deal Brexit’ are alleviated. £1,139 per sqft / 4.15% NIY. Pricing and approximately 28%. remains.

| Market Update Q1 2019 Market Update Q1 2019 | National Investment Market

With political turmoil at Westminster, Q1 2019 income with fixed/index linked rental uplifts was a difficult quarter for UK property transaction to ‘5A1 tenants’ which provides an element volumes. For the full year 2018 and Q1 2019, of comfort in a somewhat vulnerable wider transaction volumes for the entire UK market market. Prime multi-let yields remain at c. were down overall as follows: 4.50% and stock continues to be in strong demand from a broad range of investors. Full Year: £56.75 Bn down 9.8% on 2017. London accounted for £20.7 Bn. Notable industrial transactions during Q4 include; Project Hurley a £250M industrial H2 2018: £30.29 billion down 15.3% on the land deal including 26 individual plots, RD High Street Retail same period 2017. Park, Hoddesdon a 6 unit distribution park The High Street retail investment market It is clear that demand within this sector is which sold for £145M and the IO2 Portfolio of remained subdued in Q1 2019. Investor mainly for assets within London and top tier Q1 2019: £9.5 Bn down 26.3% on Q1 2018. 30 multi-let industrial estates which sold for confidence in the sector remains low; this is retail locations alongside investments offering £140M reflecting a NIY of 6.75%. continuing to be amplified with the news of secure income. Whilst discussions over Brexit continue at more retailers suffering with Debenhams the Westminster we expect a softer political The manufacturing sector grew 0.9% in latest major High Street name to be entering Secondary and tertiary retail remains less consensus could emerge perhaps in the form of February accounting for half the total GDP administration. resilient with yields continuing to move further a Customs Union or a conditional backing of the growth for the month. The sector’s resilience out, increasing the gulf been prime and Withdrawal agreement contingent on a second to the on-going political uncertainty suggests Preliminary numbers from PropertyData show secondary. Tertiary yields in this sector are referendum. In these scenarios, we expect a rise the industrial market will continue to see a investment volumes to be close to £340M currently 10%+. in transaction volumes as investors sitting on the high level of demand from UK and overseas for Q1 which is down 13% on the same side-lines look to re-enter the market. investors. In turn we anticipate the sector to period last year. This is skewed by Ashby Allsop advised on one of the larger transactions experience further yield compression whilst Capital’s purchase of Kensington Arcade, at the start of this year through the disposal Industrial transactional volumes remain restrained by a London comprising 16 retail units and three of 107-143 Muswell Hill Road, London. The defensive mind-set from landlords. small office spaces, multi-let to 12 tenants investment provided strong income from both Q1 has seen the industrial investment market for £200M. The Cadogan Estate’s purchase retail and residential accommodation and was transact £1.594Bn over 120 deals. Although of 35-41 Kings Road for £40M was another purchased by DTZIM for £21.M - 4.4% NIY. this reflects a 27% reduction on Q1 2018, the landmark deal in Q1. reduced transactional volume is a result of limited Allsop has also advised on the sale of a secure supply rather than contracted demand. Whilst The depth of interest for High Street income, city centre foodstore, investment let to volume is down, the average weighted yield has investments has remained thin across the Aldi in High Street, Glasgow achieving £4.42M strengthened yet again, currently standing at sector with prime yields consolidating at - 6.20% NIY as well as disposing of a top 5.51%. This reflects a 10bps compression on Q1 close to 5%. 15/17 Market Street, York, let tier town retail arcade; Liston Court, Marlow 2018 illustrating the robust demand. to Superdrug for a further 9 years, sold this achieving £6M - 5.80% NIY. quarter for £4.675M reflecting 5.82% NIY. Prime logistics yields have remained in the region of 4.0 - 4.5%. Emphasis remains on long dated

| Market Update Q1 2019 Market Update Q1 2019 | National Offices Portfolio

Q1 2019 has clearly been dominated by Market volume totalled over £13.8Bn in 2018. political uncertainty and this has had a Whilst volume decreased slightly on the previous significant impact on south east and regional year, the number of transactions has increased office investment volumes. This has not confirming strong market activity comparable to however extrapolated through into a movement what was widely considered a stellar 2017. in pricing. The portfolio market is currently a tale of two This is not a huge surprise as the fundamentals halves. Transactional activity on the open market of the national office markets are strong. The is relatively sparse, particularly so within the south east and ‘Big 6’ cities are generally all at commercial arena where an inherent risk of record low levels of Grade A supply at sub 6%. economic instability has discouraged vendors, Take up has remained robust and development anticipating a more positive market climate later pipelines are relatively constrained. This has in the year. Industrial portfolios represented the resulted in a general expectation of short to medium term rental growth in these sub- Behind this façade, appetite for off-market markets. and selectively marketed portfolios has single most sought after asset class steadily grown over the last 24 months and we Prime national office yields remain stable at consider will continue to drive the market for in 2018 and it is expected this trend 4.75% for in-town offices. Out of town offices / the remainder of the year. Industrial portfolios business parks are less sought after particularly represented the single most sought after asset by UK institutions and yields are softening at class in 2018 and it is expected this trend will continue. 5.5%+. will continue, albeit on a reduced scale given ongoing stock shortages within the market. Local councils seem to have taken a step away from investing into direct real estate for the time Correct asset selection continues to remain being but we would not be surprised if we see one of the most hotly debated topics. Premium significant inflows from the Middle East and pricing for portfolios remains achievable Retail Warehousing However, behind the headlines, there are a other overseas investors which will replace this but excellent attention to detail and correct number of transactions which have bucked active pocket of investment capital. presentation is vital to achieving competitive Prime retail warehouse yields have softened the trend. These have been driven by strong bidding situations. coinciding with a decrease in institutional market locations, where the underlying residual value activity with funds selectively targeting core stock for alternative uses, particularly residential, has 2019 is shaping up to be a very interesting year, across all sectors rather than secondary stock resulted in competitive bidding and a downward there is sustained pressure to invest from a wide trading at a discount. Current yields for prime pressure on yields. With the continuing positive variety of investors, looking to invest within a open A1 schemes are 6.00% and restricted outlook, sharpening yields and pricing in the wide range of use types and income profiles; A1 consent, 6.25%. Occupationally the retail industrial / logistics sector, retail warehousing whilst supply levels continue to improve. warehousing market has not been as adversely in certain locations looks to provide relatively affected by occupational instability as High Street good value. A recent example is Pavilion Retail retail although vacancy levels have risen to 7.8%. Park, Brighton which Allsop acquired for CCLA from Aviva for £32.5m reflecting 5.53% NIY. The In Q1 2019 £265.42M of transactions have been scheme was underpinned by strong residual reported to date which is a fall of 44% compared value with 77,056 sq ft of retail warehouse to Q1 2018. Key transactions include Bell Green accommodation let to Aldi, Hobbycraft, Halfords, Retail Park, Sydenham purchased by CBRE B&Q and Costa. Global Investors for £50m - 5.95% NIY.

| Market Update Q1 2019 Market Update Q1 2019 | Commercial Auction Market

Despite the fascination with the events at These two instructions serve to prove the Westminster in the last quarter, the Private continued appeal of mixed use assets in London Investor continues to compete strongly for iconic and the South East and efficacy of the auction assets, mixed use, alternatives and selectively in route. the retail sector. Despite scheduling the March auction three days Across the Commercial Auction sector, turnover is before we were due to leave Europe, investors down 22% year on year. Against this background, continued to bid, although slightly more selectively the Allsop Commercial Auction volumes are a little than in the February sale. Private Investors’ time ahead of last year, due largely to a very strong horizons remain long-term, and along with a strong A very strong February auction with February auction with revenues of £147M, against overseas contingent, bidders largely ignored the our five yearly Q1 average of £141M. local crisis a mile down the road in Westminster. revenues of £147M, against our five

Our February auction was dominated by two One of the largest lots was let to another iconic yearly Q1 average of £141M important instructions, the first was a sale of a London occupier the London Business School. portfolio of 30 High Street assets. This all sold Located just off London’s Regents Park, Lot 57 is in strong competition at a total of £21M. Some let at £127,500 pa, and sold at £3.1M (3.8% NIY) highlights included an Iceland in Islington, let at reflecting £1,000 per sqft. £100,000 pa which sold at £2.6M (3.6% NIY). Also, a parade of seven shops with flats above in We continued the theme of portfolio break-ups by Sidcup which attracted bids from four seasoned selling 10 convenience stores let to McColls and The established core market of High Street retail Meanwhile, all lots offered in the Convenience, investors with the hammer falling at £2.42M (6.2% three NCP Car parks. remains a challenge. We sold a portfolio of 10 Supermarket and Charity sectors sold, at an NIY). assets for one fund, where yields ranged from average of 6.8% NIY, showing the appetite from The newly let McColls stores sold at an average of 4.7%-22% showing tremendous inconsistency, buyers in these trusted sectors. The Lady Magazine, on Maiden Lane in London’s 6.25% NIY, peaking at 4.5% for Lot 19 on Ilkeston a theme that prevailed throughout the sale. The is an iconic building, part let on Road in Nottingham. peak was a Specsavers in Hinckley, which sold Auctioneers always talk about pricing and a life tenancy and part to the Lady Magazine at 4.6% net against the average retail yield meeting the market on this key aspect of our as their offices on a short lease. This generated The three NCP units all benefitted from of 7.5%. Specsavers is a profitable business, business. With the correct approach, clearly enquiries from UK, Hong Kong, European and occupational leases until 2037 with annual which all buyers are familiar with and probably we are accessing a strong buyer base in these Middle Eastern investors. The auction room increases, and proved very popular. Two Hong need, and as a tenant has shown little inclination uncertain times. provided competitive bidding with the property Kong investors bid competitively against the room to reduce its High Street footprint. This is but selling to the local Landlord, Capco, outbidding for the two leasehold investments and the freehold one example but serves to show how buyers an Italian Family office and paying £12.4M, site in Newport, Gwent let at £110,000 pa sold at can sometimes be more concerned about the the highest price ever paid under an Allsop £1,900,000 (5% NIY), possibly a record low yield longevity of the tenant than their immediate Auctioneers’ hammer. for the town. returns.

| Market Update Q1 2019 Market Update Q1 2019 | Business Rates

The 2021 Rating Revaluation will be based properties with Rateable Values of less than upon rental levels prevailing on 1 April 2019. As £51,000. In total the various rate reliefs a result the new Rateable Values should be in granted have reduced the total business line with today’s market rental values. On many rates forecast to be collected this year from properties the new Rateable Values are likely to £31.4Bn to £26.5Bn. The growing criticism vary significantly from the current figures reflecting reflects that despite previous Government changes in rental values. reviews of business rates these have failed to address the fundamental issue that the level The Government will publish the draft 2021 of the tax is now too high. Rateable Values on 30 September next year. Although many Rateable Values will significantly change one aspect which will not change is the income generated from business rates for the Government. At a Rating Revaluation the Uniform Business Rate (UBR) is recalculated so as to bring UBR for in the same income for the Government as before the revaluation - this revised figure is then also 2019/20 is the increased by the rate of inflation. It is this process combined with annual UBR increases linked to highest ever inflation which has led to the UBR increasing from 34.8p in 1990 when the Government first set a national UBR to this years figure of 50.4p. and it is the first

The UBR for 2019/20 is the highest ever and it time that this is the first time that this tax has been set above 50% of a property’s Rateable Value. The criticism tax has been at the level of business rates is also at an all time high with the Government having to introduce an set above 50% increasing number of measures in an attempt to mitigate the impact of the tax on certain sectors. This year has seen the introduction of a two of a property’s year scheme to cut rates bills by a third on retail Rateable Value

| Market Update Q1 2019 Market Update Q1 2019 | Residential Development Market

Q1 2019 has seen a cautious start to the developers are still chasing scale, due to year. As always there are those that have just reducing the number of planning applications finished their year end in line with the calendar they need to submit across their business, year and are very much contemplating the there is increasing financial support for the year ahead and the potential challenges and sub 100 unit schemes. Whilst the depth of Developers in London and the opportunities, this year arguably more than the end purchaser market is not as strong ever. While others are waiting for some clarity as recent years, it is still possible to obtain around Brexit, we have seen a number of premium land values for the right consented South East are viewing 2019/20 transactions, that had previously slowed down, product. This has been evidenced through speed up and complete ahead of financial our two recent sales in Surbiton, one with much like they did 2009/10, as year end. This reflects the desire of many to consent for 49 units and one with consent for get on with business irrelevant of the unknown 41 units as well as our site in Edmonton with Brexit outcome. This is consistent with much consent for 68 units. an environment to help build a of the past two years where developers are endeavouring to continue to build and keep Many developers in London and the South pipeline for years to come their construction and sales teams busy. East are viewing 2019/20 much like they did 2009/10, as an environment to help build a The sheer extent of the uncertainty and delay pipeline for years to come. This is particularly around Brexit has impacted large parts of the relevant on large scale unconditional market, however, this indecision has created opportunities where affordable housing Interestingly the PLC house builders are themselves too exposed in these uncertain opportunity for others with strong unconditional and planning challenges show little sign of coming under increasing competition from times. The purchase of said sites is further buyers waiting in the wings. With an extension dampening demand. Housing Associations and Build to Rent frustrated by delays within planning as the to Help to Buy until 2023 and the hope that we developers in the traditional residential majority of planning authorities remain hugely are teetering on the edge of some degree of In the regions we are finding prime sites housing market, who are very competitive on under resourced. clarity on Brexit, one way or another, spending are still receiving significant attention land value due to different requirements on the next couple of years getting planning and from developers and the market remains profit, borrowing and return on capital. This However in the middle of every difficulty lies building means that your end sales are likely extremely buoyant and competitive, we have is creating a more competitive and diverse opportunity and it is clear that certain parties to be coming to the market in a much better seen this through the recent sale of Maxi’s market. have made a decision to avoid any further environment. Chinese in Leeds for a record value per acre procrastination over Brexit and get on with and Oughtbridge Valley a scheme of 320 The market for peripheral, low value sites is business and while this may suggest a small With this in mind there appears to be plenty of dwellings in Sheffield with numerous offers challenging, likely the result of a combination light of optimism in the market, only time will money in the market, keen to invest and there secured from national house builders. of things, but predominately the risk profile of tell for these early movers. are a number of new lenders that are eager to small and medium size developers who are support the smaller developer. While the larger essentially operating ‘hand to mouth’ with regards to land purchases so not to leave

| Market Update Q1 2019 Market Update Q1 2019 | Residential Investment Market

There has been a notable change in the air over The most notable change (albeit perhaps recent months. Certainty and resilience in the not unexpected) has been a strong uptick underlying fundamentals surrounding long term of interest in London from a sales and residential investment in all its forms are the order acquisition perspective. Albeit it is still a of the day. little too early to tell for sure but on a deal by deal and a location by location basis, Brexit dominates the press but investors appear some investors perceive the market to have to have decided that despite this, business must reached the bottom and some vendors are continue, money has to be deployed and people looking to cash in on good quality London need somewhere to live whatever happens with centric assets. Brexit. The prediction for the remainder of 2019 As always, carefully researched pricing is is perhaps the most important one. absolutely key at the current time. ‘Confidence’ is probably not the right word but ‘resilience’ with a hint of optimism (and a Regional investments all over the UK and in palpable future sense of relief) post Brexit and particular in the north where higher yields can a very possible ‘Brexit bounce’ is the muted still be found remain popular with investors. undertone. Stand alone unbroken freehold blocks of flats as always, remain the most popular and to a lesser extent, portfolios of houses and the secondary student sector.

The demand from high net worth investors in the sub £5M sector seeking healthy yields continues unabated but alongside these, there are a number of existing institutional investors with significant appetite for volume and yield. Demand from high net worth In addition, Local Authority acquisitions in this investors in the sub £5M sector sector are coming to the fore, some of whom are well organized and proving to be very competitive for certain assets. seeking healthy yields continues unabated

| Market Update Q1 2019 Market Update Q1 2019 | The Build to Rent Market

The BTR sector continues to progress Boroughs to require ‘traditional affordable’ through the ‘development phase’, with the housing in BTR developments rather than focus having shifted towards construction of Discounted Market Rent, met with sector schemes and existing stock management, opposition. The BPF and key providers including mobilisation of assets. There is such as Get Living London and Greystar, now an increasing number of authentic have made representations to the GLA; BTR developments which have completed. and Unibail-Rodamco-Westfield has joined Moorfield’s ‘The Forge’ development in forces with Canada’s PSP Investments and Newcastle, M&G’s ‘The Astley’ in Manchester, QuadReal Property Group to build one of Grainger’s ‘Argo Apartments’ development in London’s largest PRS schemes with c.1,200 Canning Town Greystar’s Sailmakers scheme units adjacent to Westfield Stratford. in Canary Wharf, have all completed and are performing well. The British Property The appetite for ‘second tier’ cities such Federation’s (BPF) latest figures demonstrate as Glasgow, Derby, Nottingham and well- London has taken back the this shift into the construction phase, estimating connected large towns continues, with an impressive 29,416 units completed and investors seeking to deploy capital in growing majority gain of BTR homes with 43,374 under construction. London has taken locations outside of the core major cities. back the majority gain of BTR homes with Experience from other stabilised schemes approximately 72,767 in London and 66,741 in is providing the confidence that security of approximately 72,767 in London the regions, with schemes in the regions having income can be achieved in all areas, stronger outnumbered London in Q2 2018. yields are helping to improve viability as well and 66,741 in the regions as evidence of an average premium of over Recent BTR announcements worthy of mention 9% when compared to BTL market rents. include: Grainger has been selected by TfL Investors are becoming more comfortable as its preferred bidder for a major strategic with investment pricing being much closer to partnership to build 3,000 homes across eight hypothetical sales values in certain locations, seed sites in London. A minimum of 40% will which is an important factor in making it locations are seeing closer to 4.75% to 5.25% Allsop Lettings and Management has now be affordable housing with the majority of the possible for BTR to work in towns and cities NIY. Accurate pricing analysis remains difficult, released Moorfield’s second BTR development: remainder as BTR, Grainger was selected with sales values of less than £300 psf. although we are now seeing some incremental The Trilogy, Manchester. Pre-PC lettings have ahead of Greystar and Argent Related; L&G stabilised asset transactions, factors such as been positive with 32% of all units pre-let. has gained planning permission to redevelop Yields remain strong for well-designed BTR design, layout, management, and amenity space The Forge in Newcastle, Moorfield’s first BTR the Longley Industrial Estate in Brighton into stock in prime, practical locations; in London can only be considered on a case by case basis, development, continues to perform well with a 200-BTR home complex; a late proposed and strong SE locations, NIYs range from which makes the comparison of development 113 units from Phase 2 now released with the amendment to the London Plan which 3.25% to 4.00%, with a number of major transactions challenging. remaining Phase 3, comprising 59 units, due for would allow (subject to local policy) individual regional centres at 4% to 4.5%. Secondary release in the summer.

| Market Update Q1 2019 Market Update Q1 2019 | Residential Auction Market

The residential auction market has faced a Having demonstrated that there is still life challenging start to 2019. Turmoil in Westminster in the room, our second sale on 28 March and continuing economic uncertainty has resulted continued to defy Brexit blues. Another £57M in a reduction in the volume of transactions across sale brought the total raised for Q1 2019 the sector. to £114M. The sales rate is currently 77%. Owners were encouraged by the mood in the Despite this, the Allsop auction rooms have room and particularly the sustained interest in remained active. Buyers are keen to do business higher value assets. A short leasehold building but have grown increasingly cautious. There has in Charles Street, Mayfair, arranged as five self- been some healthy competitive bidding. However, contained flats, was knocked down for £6.6M unless pricing is realistic, bidders are more likely to from a guide price of £6M. sit on their hands. This sentiment has resulted in heightened post auction activity both in the room As we enter Q2, preparations for our 30 May and during the days following the sale. There is sale are underway and we have been busy evidence too that some owners are postponing appraising a large quantity of good quality their decision to sell until a degree of stability stock for immediate sale. and certainty is restored. Sellers acting in a fiduciary capacity, such as public bodies, housing associations and receivers, need not adopt such a strategic approach to disposal. These vendors are able to price attractively for today’s market conditions and have, as a result, achieved strong prices from the keen interest generated.

Our first auction of the year was held on Valentine’s Day. Despite the backdrop of weak results across other sales, a total of £57M was raised. The largest lot sold under the hammer was a freehold building in Fairlawn Avenue, Chiswick, Having demonstrated that there London. Offered by receivers with planning permission for conversion, it fetched £1.9M. is still life in the room, our second sale on 28 March continued to defy Brexit blues

| Market Update Q1 2019 Market Update Q1 2019 | t

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