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Demand for commercial property at lowest level since 2012, says industry report

Demand for office space in the South West has slipped to its lowest reading since September 2012, the Royal Institute of Chartered Surveyors’ UK Commercial Market Survey has revealed.

The survey added that the current impasse over Brexit is contributing to perceptions that the South West commercial property market is in the downturn phase of the property cycle.

The RICS report for Q3 2019 said that enquiries from investors are down at headline level and that 53 per cent of respondents believe that the market to be on a downward trajectory.

Occupier demand in the South West fell at the headline level once again, with the net balance slipping to -19 per cent, the lowest reading since June 2012.

Once again, the retail sector continues to drive the overall decline (net balance -62 per cent, compared to -54% in Q2).

However, demand for South West office space also fell during Q3, with a net balance of -8 per cent compared to -1 per cent in Q2.

Demand for industrial space has a net balance in the region of +12 per cent.

The region’s retail sector continues to have large numbers of vacancies coming to market, prompting another increase in incentive packages on offer to prospective tenants.

Inducements are also on offer in the office sector with 17 per cent of respondents reporting a rise in the packages.

South West respondents to the survey project that rents for the coming three months are expected to rise in the industrial sector, the only sector to see any notable interest from tenants.

Unsurprisingly, the retail sector isn’t expected to improve, some 63 per cent of respondents in the region expect to see further reductions in rents across the market.

Across the UK, retail rents are reading at the lowest level since the financial crisis (Q1 2009).

Looking further ahead, local respondents expect prime and secondary retail rents to fall for the year ahead.

The outlook has turned negative for secondary office rents in the South West, driven by weakening expectations in London.

By way of contrast, the industrial sector continues to return rental growth projections for the coming 12 months in the region.

Interest in investing in the local commercial property market fell again this quarter, with -5 per cent more South West respondents seeing a fall in investment enquiries.

Overseas investment demand also declined across the sectors with a net balance of -9 per cent of respondents seeing a fall.

Tarrant Parsons, RICS Economist, said: “Although a clear majority of respondents now perceive the market to be in a downturn, the fact that capital value expectations are still positive in many parts of the country suggests a relatively soft landing for the commercial real estate sector is anticipated overall.

“That said, the fallout for retail is altogether more severe. It remains to be seen what impact the latest Brexit developments have on confidence across the sector, but with the picture unlikely to become clear until into the New Year it may well mean hesitation continues over the near term.”

Martin Smalley of Gleeds in Bristol added: “Brexit unsurprisingly has created an atmosphere of uncertainty in the regions.

“There are however hotspots around areas of significant infrastructure investment like Hinckley Point C which is fuelling growth across the commercial, retail, industrial and residential sectors.”

By James Young

Source: Punchline Gloucester

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Commercial property: Build-to-rent is a growing family affair

Research by the Institute of Fiscal Studies suggests that owning their own homes is no longer a priority for younger generations, particularly those in the 25-to-34-year-old bracket.

But renting is not just for singles or couples. Families are increasingly turning to the private rental sector, with a five per cent rise in Scotland over the last last year and three and four-bedroomed houses generating the steepest growth in rent.

This is where build-to-rent (BTR) comes in – homes which are built to a high standard specifically for the long-term rental market.

Up until now, BTR developments have captured a completely different market, but if it continues to deliver only for young professionals it will not achieve its full potential.

Families who cannot afford to buy their own homes are looking for security and are much more likely to settle for longer periods, providing a steady income stream for large-scale investors.

This is ideal for BTR developers who offer greater security to renters, with specialist operators rather than local factors managing accommodation.

On the regulatory side, there have been some notable moves in the last few years to support the case for family-friendly BTR.

Local authorities were given the power to create Rent Pressure Zones (RPZ) in December 2017, capping rent growth at four per cent per annum in areas where rents were at risk of overheating.

This is particularly important for Scotland’s cities showing strong growth – including Edinburgh – with population growth forecasted at 7.7 per cent by 2026.

Perversely, by smoothing out the inflation and deflation cycle, RPZ provides greater levels of security for tenants and specialist landlords relying on a long-term investment.

The balance of risk between tenant and landlord has also shifted, with all leases in Scotland now based on a lifelong security of tenure.

Landlords can no longer terminate a lease on “no fault” grounds. Again, specialist landlords see this as underpinning the case for providing suitable and family-appropriate private rental accommodation.

Developers and investors should also take heart in the fact that a tax incentive, whereby six or more dwellings can be treated as non-residential thus exempting them from LBTT, is now in force.

This, coupled with economies of scale and efficacious modern methods of construction, is strengthening the business case for BTR in Scotland.

Some 6,300 BTR units are currently at various stages in the planning process, with developments such as Candleriggs Court in Glasgow and Lochrin Quay in Edinburgh, already complete.

A successful and inclusive BTR sector in Scotland is a win-win-win for policy makers and the Scottish Government, which is keen to meet ambitious housing targets; for developers and investors, who are seeking to capitalise on the growing demand for larger private rental accommodation, and especially for the growing family of Scotland’s renters.

By HEATHER PEARSON

Source: Scotsman

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Commercial property investment surpasses £100m in 2019

COMMERCIAL property investment in the north has surpassed £100 million this year, according to a new industry report.

The latest data from Lisney reveals a better than expected last quarter, with the recorded £60m investment between April and June 9 per cent up on the same period in 2018.

The resilient performance brings the total value of transactions in the market for the first half of 2019 to £101m.

The largest deal completed in the second quarter was Citi’s purchase of its Belfast office in the Titanic Quarter for £34m, with other notable transactions, including the sale of Antrim Business Park of £12.5m and the £5.25m acquisition of Timber Quay in Derry.

A total of £45m worth of commercial property was on the market in the last quarter, including the Great Northern Tower and Boat in Belfast, along with Clandeboye Retail Park in Bangor.

PwC’s decision to acquire additional space and occupy the entirety of its new 155,000 sq ft Merchant Square Belfast headquarters pushed take-up within the sector to 75,171 sq ft in the three months to June. That being said the total is down on the previous year, while a shortage of Grade A office space within Belfast city centre continues to be a challenge for the market until new stock comes online later this year.

The struggling retail sector was boosted by Primark’s opening of a second city centre store at Fountain House on Donegall Place and the expansion of its Abbey Centre outlet. In relation to the industrial sector, the biggest letting of the year was a 113,550 sq ft site on the Lisdoart Road in Ballygawley.

Declan Flynn, managing director of Lisney Northern Ireland, said the local market continues to perform admirably in spite of the uncertain political climate

“We’re continuing to see healthy levels of local activity at a smaller lot sizes with pricing remaining resilient. That said the appetite of external investors is undoubtedly hampered in the current climate,” he said.

“This is understandable as the capital markets reflect the risk associated with Brexit. The retail sector continues to be a major talking point as the sector remains in the midst of a correction, given how our volumes have been traditionally dominated by retail this is a particularly pertinent for the Northern Ireland commercial property market.”

By Gareth McKeown

Source: Irish News

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Commercial property: Lack of supply demands developments

There is no shortage of investors and developers looking to gain exposure to the Edinburgh office market.

However, as many landlords opt to hold on to their investments – attracted by rental growth and yield compression, there is a growing appetite to refurbish or redevelop older buildings in the Capital to meet the demand for quality office accommodation.

Edinburgh is experiencing historically high levels of occupier demand from a wide variety of sectors, with employers attracted by the city’s talent pool and the quality of life in the Capital.

However, the office market faces dwindling supply and we anticipate seeing a spike in rents as tenants compete for limited space.

Rents for grade-A offices in the city centre are currently around £35 per sq ft and could top £40 next year.

At present, there is little more than 250,000sq ft of prime office space available in Edinburgh and the two speculative developments currently in the pipeline – 
62 Morrison Street and 
20 West Register Street – are mostly or completely pre-let.

The Capital has lost more than 1.2m sq ft of office space to alternative uses in recent years, while take-up is running at 1m sq ft a year.

This poses two big questions: where will the money go? And where can thriving businesses house their growing numbers of staff?

Professional and legal services, the burgeoning tech sector, and a financial industry that continues to thrive – the market has rarely looked so good from an investor’s perspective.

Companies don’t want to relocate, even partially, because the city and lifestyle are key attractions for the talent that is the lifeblood of these service sector businesses.

But there are few – if any – sites in the city for large-scale speculative development still available.

Where possible, landlords are either substantially refurbishing older buildings or selling up, thereby avoiding construction and letting risks.

Competition for refurbished space is likely to hot up as the shortage becomes more acute; we are starting to see businesses actively competing for the best office locations.

Beyond that, the obvious escape valve for city centre-based companies lies to the west, around South Gyle and Edinburgh Park.

With excellent connectivity to the city and available space, we anticipate increasing demand and more interesting developments.

However, the city centre remains the most prized location for wealthy and ambitious, people-focused companies, and – where possible – older buildings will make way for more contemporary offices.

The re-development of Haymarket has been a start, but with investors poised and firms demanding more space, the next few years should see more interesting developments appearing.

Demand for office space around Edinburgh is likely to keep outstripping supply. As a result, rents look set to keep moving higher, especially as the city’s tech start-ups mature into larger companies, with a need to attract talented people.

By ELLIOT CASSELS

Source: Scotsman

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Investor enthusiasm for UK commercial property slumps

Investor enthusiasm for commercial property in the UK has slumped further as sentiment swings towards France and Germany.

Only 27 per cent of international professional real estate investors said the UK is their preferred market, down four per cent in the last 12 months as Brexit uncertainty continues to weigh on investor sentiment.

Meanwhile support for the French market saw a 20 per cent year-on-year increase and appetite for German investments rose by seven per cent, according to the latest commercial property investment barometer by real estate platform Brickvest.

There was also a drop in the volume of assets under management that investors are planning to plough into real estate over the next year according to the quarterly survey of 6000 international professional investors.

Investors are planning to commit 2.5 per cent of their total AUM, a drop of 33 per cent on the planned amount of 3.7 per cent in the second quarter of last year.

Brickvest chief executive Emmanuel Lumineau said: “The latest figures of our Barometer reveal the continued negative effect of Brexit uncertainty on the UK commercial property market among international investors and particularly those based in France and Germany.

“We can expect this to continue over the third quarter and the October deadline at the very least.

“In the meantime, France and Germany are becoming more attractive destinations for international real estate capital.”

By Jess Clark

Source: City AM

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Post-Brexit binge in commercial property?

Pent up demand could see a boost to the commercial property market post-Brexit, according to new analysis of the commercial property market from Shawbrook Bank.

The ‘UK Commercial Property Market Report1, produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR) assesses the state of the current commercial property market, exploring the various sub-sectors comprising the market, historic and future trends, and the impact of the changing political landscape.

The Shawbrook report shows that uncertainty over Brexit has weighed on the commercial property sector in recent quarters, as owners and tenants take stock. But despite activity slowing, the market remains a profitable place to invest and deliver a solid income over the medium to long term. Over the past 18 years, the commercial property market has returned 308% to investors compared to 209% for the FTSE100, and yields have remained stable; average yields across the commercial property sector have stood nearly unchanged at 5% since 2015.

Rob Lankey, Director of Commercial Property Investment, Shawbrook comments: “Although uncertainty is present, the commercial property market remains fundamentally resilient in terms of both yield and capital growth. Despite investors taking a wait-and-see approach, we believe many are stockpiling cash and simply postponing activity until we have a definitive Brexit outcome.

“With the long-term view and fundamentals of the commercial property market still compelling, I would go as far to say that we will see a ‘post-Brexit binge’ from professional investors looking to utilise the cash they have stockpiled to take advantage of investment opportunities in the post Brexit landscape. However, not every commercial property investment will automatically generate great returns. Doing your homework on potential investments is more important than ever. There are good and bad opportunities within all sectors.”

Factories, warehouses and other industrial properties have shown the most resilience

Underpinning the resilience of the commercial property market are factories, warehouses and other industrial properties, which over the past few years have become the best performing sector over one, three and five years, with yields in line with the commercial sector more broadly2. Stockpiling activity and strong demand for warehouses from online retailers have helped the sector to withstand economic headwinds to date, however, the unwinding of the stockpiling effect poses a risk to this asset class as does a no-deal Brexit, which would severely harm many of the manufacturers that are the current tenants of the industrial assets.

Table 1: capital value growth across industrial, retail and office properties

Capital value growth
Cumulative capital value growth Industrial Retail Office
One year: Jan 2018- Jan 2019 12% -8% 3%
Three years: Jan 2016- Jan 2019 31% -11% 5%
Five years: Jan 2014- Jan 2019 71% 1% 37%

Table 2: (Initial) yields across industrial, retail and office properties

(Initial) Yields
Industrial Retail Office
Jan-19 4.6% 5.7% 4.5%
Jan-16 5.4% 5.3% 4.0%
Jan-14 6.6% 5.7% 5.1%

 Growing popularity of serviced offices

In the office sector, demand has been strong following the recovery from the last recession. The increasing importance of professional and business services for the UK’s economy provides a strong macroeconomic background for assets in this category and growing popularity of serviced offices is becoming particularly important as new business start-ups and smaller businesses struggle to keep up with rising rents in cities such as London and Manchester and as a result are looking for more flexible spaces.

Retail needs to adapt to remain relevant

For retail properties, a number of factors have come together to create a ‘perfect storm’. On the back of a decade of very low real wage growth, consumers have turned away from the high street and increasingly do their shopping online. Recent research on high streets in Great Britain by the ONS shows that over half (56%) of addresses on high streets are now residential.3

Rob Lankey adds: “The challenges faced by retail won’t be solved by a shift to residential, but the trend will be a significant boost to opportunities for property owners. Irrespective of broad capital value trends, retail property can continue to provide strong rental returns for landlords where the combination of tenant and property location are meeting modern consumer demand. For investors of mixed-use space to realise the full benefits that can be had, there will have to be a level of collaboration in the property sector moving forward. Another beneficiary of the declining high street will be for shared office spaces, such as WeWork which would likely use former retail premises in UK town and city centres”.

Shawbrook Head of Products & Markets, Daryl Norkett adds: “Broadly, if we look at the sub-sectors that are performing today and consider the analysis brought to life in this research, there is opportunity for experienced investors to grow and diversify their portfolios. However, it is important to highlight that the current market requires a certain level of expertise, knowledge, understanding and commitment of time in order to make the right property investment decisions but if you do your homework, it can be a great investment.”

Source: Property 118

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Central London commercial property market investment up over a quarter

Commercial property investment in Central London (the City and West End) rose to £3.2 billion in the first quarter of 2019, a 28 percent increase on the £2.5 billion invested in Q1 2018, according to new data from Savills. The firm also claims that investment volumes in Central London in Q1 2019 were also higher than those in Q1 2015 before the UK’s referendum to leave the EU, when they reached £3.14 billion.

According to Savills, US buyers have been the most active investor group in the Central London market in the year to date, accounting for £1.43 billion of transactions (45% of the total), although this has only been across four properties. Domestic buyers are leading the way in terms of numbers of deals acquiring 23 assets, totalling £906.6 million (28%).

Savills highlights that, despite uncertainty in the market, there have been significant capital flows into Central London real estate in Q1 2019. Citigroup’s acquisition of its EMEA Headquarters at 25 Canada Square in Canary Wharf for approximately £1.10 billion is clear evidence of continued confidence in the Central London market.

The sale of 25 Canada Square (pictured) is the eighth deal above £1 billion to trade in Central London over the last five years, joining the likes of 1 Plumtree Court, EC4 (£1.16 billion) and 5 Broadgate, EC2 (£1 .0 billion) which sold in 2018. Savills figures show that 2019 has been a year which has picked up pace, with only 15 properties trading in January to February. March, however, saw 24 deals transact totalling £2.09 billion.

Stephen Down, head of Central London investment at Savills comments: “Despite the well-noted uncertainty hanging over the UK at the moment, this has not stopped a number of commercial property investors from recognising London’s innate strength. Several of them actually see now as an opportunity and the deals that are offered to the market still seem to draw in a healthy level of prospective buyers, both domestic and international. We have seen a particularly strong appetite for commercial development and opportunistic stock, which is a response to the structural supply shortage that Central London is facing in the office sector.”

by Neil Franklin

Soruce: Workplace Insight

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Scottish commercial property market outperforms UK in several sectors

SCOTLAND’S offices, retail and alternatives property markets all significantly outperformed the UK markets in 2018, according to data released by leading property consultant CBRE yesterday.

Their research revealed that the annual Scottish all commercial property total return for 2018 was 5.6%, only slightly lower than the UK all property return of 6%.

Industrials in Scotland also had a strong end to the year, achieving the highest return of the three main sectors.

Office and industrials returns in Scotland have increased year on year, with offices achieving 8.2% compared to 5.9% in 2017, with industrials increasing from 7.9% to 8.6%.

Offices were 2% ahead of the UK figure of 6.2%, while retail returned 4.7% compared to the overall UK figure of minus 1.1%.

Alternatives continued to be the best performing sector in Scotland, and the only one to achieve double-digit returns in 2018, with 10.6% compared to the UK’s 7.5%.

CBRE said that given the current challenges facing the retail sector, it is unsurprising that at year end the outlook remained subdued.

Compared with performance for the whole of the UK, Scottish returns have been more resilient in the final quarter of 2018. At the all property level, the picture is very similar –with UK returns down by almost 1.5% and Scottish returns unchanged.

During the last quarter of the year, £642 million of stock was transacted in Scotland, demonstrating a strong final quarter, and bringing the annual total to £2.49 billion in 2018. This is broadly in line with the £2.5bn achieved in 2017.

The retail sector total was boosted by the controversial sale of Fort Kinnaird Retail Park, located on the eastern edge of Edinburgh, which was acquired from The Crown Estate by M&G Real Estate for £167.25 million, with none of that sum accruing to the Scottish Government despite the Crown Estate being devolved.

David Reid, associate director of CBRE, said: “It’s great to see the industrial and logistics sector in Scotland performing strongly again during 2018 with sharpening yields and increasing rental and land values within prime locations.

“With this backdrop we are seeing increasing developer appetite for speculative schemes and there are a number of occupier pre-lets on the horizon during 2019.”

By Martin Hannan

Source: The National

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FCA keeps close eye on UK commercial property funds

The UK financial watchdog is seeking daily updates from commercial property funds following significant withdrawals from the sector in December.

The UK Property sector saw £315m in outflows during December. It is seen as particularly vulnerable to any problems from Brexit, as international buyers are an important source of demand for commercial property.

At the same time, investors have become increasingly concerned about the weakness in the retail sector. Landlords are being forced to accept non-commercial terms from tenants in difficulties.

The FCA is taking an interest because the last time the sector saw significant outflows, the funds had to stop investors redeeming their shares. Investors couldn’t get their capital out for a period of time. This happened in the wake of the Brexit vote in 2016 and during the global financial crisis in 2008. The funds ultimately reopened and investors could trade as normal.

The largest funds, including those from M&G and LGIM, hold property shares and cash to help them meet redemptions. They would otherwise have to sell off large buildings quickly, which can be difficult. They may also need to sell their prize buildings – for which there is the strongest market – while hanging on to their existing, weaker buildings.

Investors using investment trusts to access the commercial property sector aren’t affected by the problems.

Source: Your Money

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Commercial property investment in the north falls to five-year low

COMMERCIAL property investment in the north fell to its lowest level since 2013 last year, according to a new industry report.

The latest Lambert Smith Hampton bulletin shows that the £176.6 million investment volume recorded in 2018 was 48 per cent lower than the previous year and 12 per cent down on the 10-year average.

After a slow start to the year, the quarterly activity exceeded £50m for the remainder of 2018, boosted by the beleaguered retail sector.

Retail transactions accounted for almost half of the activity in 2018, with notable deals including the Belfast sale of 40-46 Donegall Place for £16.4m, the acquisition of Bow Street Mall in Lisburn for £12.3m and the purchase of the Newtownards-based Castlebawn Retail Park for £7.2m.

Office activity also picked up in the second half of the year, largely driven by two Belfast deals – the sale of the Metro Building for £21.8m and the £15.2m purchase of Obel 68.

There was further positivity noted within the alternative sector, with car parks, car showrooms, gyms and hotels among the assets that changed hands in 2018.

Private Northern Ireland investors remain the most active and accounted for a third of investment volume last year, while institutional activity increased from 11 percent of volume in 2017 to 21 percent last year.

Notable institutional transactions included CBRE Global Investors £18.4m purchase of the NCP Car Park on Montgomery Street in Belfast and Corum Asset Management’s purchase of 40-46 Donegall Place.

Martin McCloy, director of capital markets at Lambert Smith Hampton, admitted that the ongoing political uncertainty has impacted on the local market.

“ The challenging political environment has undoubtedly had a negative effect on investment activity over the past two years, with 2017 boosted by the £123m sale of CastleCourt Shopping Centre,” he said.

“While overall the market has demonstrated a level of resilience, there is a lack of supply of good quality assets and investor caution is evident.”

Looking at the year ahead, Mr McCloy said the trend of a quiet first quarter is likely to be exacerbated by the upcoming March 29 Brexit deadline.

“Both buyers and sellers are delaying decisions until there is clarity on the withdrawal agreement or on no agreement, as the case may be.”

“Investment activity is expected to pick up when the terms of the future relationship are clearer and the transition period begins,” he added.

Source: Irish News