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British Property Federation announces plans to modernise commercial property sector

The British Property Federation (BPF) has launched a Technology and Innovation programme for the UK commercial property sector – to support the sector in its digital transformation – following the Government’s challenge to all sectors of the economy to improve productivity and deliver growth. The programme is launched with the publication of a new report produced by Future Cities Catapult, commissioned by the BPF, to understand the barriers to and opportunities for improving the productivity of the real estate sector through the application of technology.

The report Lost in translation: How can real estate make the most of the PropTech revolution? highlights that while 50 per cent of PropTech companies focus on sales/leasing, only 16 and 12 per cent respectively apply themselves in construction and investment/financing respectively. Land acquisition and refurbishment have less than five per cent of active PropTech companies. No companies, from the data sources used for the report, fell into the category for demolition/remediation.

Following a BPF-member survey, interviews and roundtables with key real estate and PropTech leaders, the report finds that there is significant untapped potential for greater adoption of technology to enhance productivity – and that the real estate sector must start by better articulating its pain points across the property lifecycle, so that innovators can better understand where there is more scope for technology to provide solutions.

To improve the sector’s engagement in and adoption of new technologies, the report’s recommendations to the sector, the BPF and the Government are:

  • Improve market information – there is a dearth of clear, quantitative and authoritative information, from the needs of different users across the property lifecycle to the nature and type of technologies on offer to property professionals.  It means that investment, buying and selling decisions are not optimised. To achieve this, next steps include:
    • Proptech Library – develop a library of all current and emerging PropTech innovation, classified in line with the lifecycle, user needs and technological drivers
    • Property Innovation Index – develop a property innovation index to assess a company’s capacity and preparedness for innovation/tech
    • Proptech Maturity Index – understand the level of maturity of technologies and give the market a better understanding of which technologies they should be investing in now
    • Research priority technology needs – the BPF is recommended to undertake regular research on the priority technology needs of members and their occupiers
  • Embed digital knowledge and foster innovative behaviours – the research uncovered scarce and unevenly distributed technical digital skills and a lack of business innovation mindset across the property sector. To achieve this, next steps include:
    • Put people with digital skills in influential roles – develop a programme to put early career software developers, engineers and designers and innovators in influential roles in property companies
    • Set up an open and challenge-based procurement platform
    • Leadership development course – the BPF is to create a leadership development course, including a comprehensive overview of the technologies driving digital innovation and the business models changing industries
  • Create a cohesive approach to championing innovation across the commercial property sector – the different asset classes, actors, innovators and regulators across different segments of the property lifecycle lead to a disconnected and unclear response to the many shared challenges and future vision. To achieve this, next steps include:
    • Shared language for the property sector – create a shared vision like the automotive industry has with ACES, to signal where the industry wants to head
    • Regulatory sandbox – the property industry, government and other strategic organisations to set up a property sector regulatory sandbox with a view to ensuring regulation does not fence out innovation and promotes it
    • Establish a property passport – the property industry and government to work together to set up a property passport with common data standards for core information relating to buildings
    • Consider productivity and wellbeing early – Centre for Digital Built Britain to work with industry, architects and innovators to improve consideration of productivity and wellbeing at the earliest stages of building design

Aligned with and responding to these recommendations, the BPF is setting up a new Technology and Innovation Group for the sector, to oversee its programme and drive closer collaboration across the real estate and technology sectors, to allow the benefits of technology to be maximised, and to preserve and enhance the UK’s reputation as a PropTech leader.

The Group will be led by Andy Pyle, UK Head of Real Estate, KPMG and also includes Nick Wright, Senior Director, Strategic Consulting – Investors, CBRE; Susan Freeman, Partner, Mishcon de Reya; Dan Hughes, Founder, Liquid Rei; and James Dearsley, Co-founder, The Digital Marketing Bureau.

Melanie Leech, Chief Executive, British Property Federation comments: “Today the BPF commits itself to provide thought leadership and deliver a practical programme to ensure the real estate  sector harnesses the benefits of technology, in line with the Government’s ambition for all sectors to better future-proof themselves, innovate and improve productivity and economic growth.”

Stefan Webb, Head of Digitising Planning, Future Cities Catapult says: “Digital tools, technologies and business models have transformed sectors from automotive to aerospace, yet the property sector has proven to be resistant to these forces. Many argue that the sector is too diverse, complex and complicated to be disrupted. However, there is more that unites the different asset classes, activities and actors across the property lifecycle in terms of data and digital than many realise. The choice for the sector seems clear, create a clearer vision, better market information and more collaboration between the sector or wait for someone else to join the dots and create a business that makes the impact of WeWork look relatively benign.”

Andy Pyle, UK Head of Real Estate, KPMG adds: “In our 2018 global proptech survey we found that whilst nearly all decision makers in the real estate industry agree they need to engage with technology, two thirds don’t have a clear tech strategy. Therefore it is hugely helpful to have an industry wide group to help understand how to respond to and capitalise on the opportunities technology creates. As the industry’s representative body, BPF is perfectly placed to do this and I look forward to leading the group.”

Source: Workplace Insight

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Investment in UK commercial property sector remains strong

Investment in UK commercial property rose 66 percent in January compared to the same month last year, according to data from Savills, to £4.2 billion. In its February Market in Minutes report the international real estate advisor says that investor appetite for UK property remains very strong. In 2017, total investment into UK real estate reached £65.4 billion, representing a 26 percent increase on 2016’s annual total. According to Savills, the office and industrial sectors led the way, with overseas investors responsible for nearly half of total volumes, of which Asian investors were the most active, accounting for a fifth of all investment.

Savills says that average UK prime yields remained static in January at 4.52 percent, around 30 basis points lower than the same point in 2017, with a small amount of downward pressure on yields for M25 office and industrial distribution assets.

Investors ploughed nearly £11 billion into the industrial sector in total during 2017, 80 percent up on 2016, according to Savills. Investors continue to be attracted to the sector by the secure income it offers, with pressures on land, particularly inside major cities from other uses, likely to maintain undersupply and deliver rental growth.

Mark Ridley, CEO of Savills UK and Europe, comments: “January’s volumes demonstrate that investors are still looking beyond Brexit and are happy to commit to the UK to secure prime property with secure income characteristics. Based upon current projections, driven by a downward shift in equivalent yields, we expect total returns for average UK commercial property to be around 7 percent this year before weakening slightly for some of 2019 as investors take a ‘wait-and-see’ approach as the UK officially leaves the EU.”

Steve Lang, director in Savills commercial research team, adds: “This February marks the 10-year anniversary of the first Market in Minutes in 2008. Back then, average UK prime yields rose by over 120 basis points during the year, development activity indicators had slumped and GDP expectations were slashed. Compared to this, the impact of the Brexit vote is relatively mild. In addition, you would have been hard pushed in 2008 to have predicted the explosive growth in online shopping over the past decade which has largely driven occupier demand, and therefore investor appetite, for industrial space.”

The UK accounts for a significant proportion of the European corporate investment transactions including venture capital, private equity and mergers & acquisitions (M&A), says Savills. Volumes have increased substantially to £6.4 trillion in total over the last five years, with the UK accounting for around 30 percent, on average, of all European deals by value.

This demonstrates confidence in the UK as a centre for investment, whether it is corporate M&A or investment into the start-up community, according to Savills, and is likely to trigger future real estate activity as companies grow and expand and then recruit as a result of raising new capital.

Source: Workplace Insight

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Proptech platform to offer direct investment in commercial property

Property Partner, the world’s first property stock exchange, today announces that investors will be given the opportunity to buy shares directly in commercial properties on its platform.

The move will enable non-institutional investors to buy and sell shares in a range of handpicked commercial properties, at the click of a button. Unlike traditional funds, which are opaque, and have been known to close their doors to withdrawals, Property Partner offers investors the chance to target individual assets and sub-sectors, as well as list shares for sale whenever they like.

According to Property Partner, UK commercial property investments have a market value of £486bn, yet UK based private investors account for just a 7 per cent share of the market. Commercial has delivered an average annual total return of 8.9 per cent to investors over the past 20 years.

Through the online platform, investors will have the opportunity to secure monthly returns from the rental income as well as the capital growth of these properties.

Property Partner will begin by listing high quality commercial properties let to household name tenants on a long lease, in strategically strong locations.

Daniel Gandesha, CEO and Founder of Property Partner said:

“We started by revolutionising access to the residential property market. Now, it’s also clear to us that not enough people can access investments in commercial property in the way they’d like. We’re making it much easier for investors to access the attractive returns on offer in commercial property.

“So far we’ve made investing in residential properties and Purpose Built Student Accommodation easier, safer and more professional for private investors than ever before.

“By launching commercial we’re going one step further. We’re helping investors to diversify not only by location but also by property class. Commercial can offer a stable, long-term yield, with an income stream that grows as the economy expands and protects against inflation.

“For most investors, the commercial property market has traditionally only been accessible through opaque, often illiquid open ended property funds, or listed property companies subject to stock market volatility. We’re doing away with this lack of transparency and access.”

Xavier Pullen, Director of Commercial Property at Property Partner said:

“Commercial property offers a strong and reliable yield over the long-term, which will remain particularly attractive in the current low interest rate environment.

“We will target higher average yields than the major funds, along with the freedom to handpick your investments and list for sale whenever you like.”

“Commercial property is primarily valued on the income it can generate for an investor, with the strength of the lease and covenant of the tenant being key determinants of value. Our strategy will be to find varied investments across sectors that all have the strong tenant factor in common.”

Source: London Loves Business

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Brexit failing to dent brisk commercial property sector

BREXIT-induced political turbulence will fail to dent the stability of the commercial property market as long as demand continues to outstrip supply, according to industry experts.

Following an unexpectedly brisk environment in 2017 which saw a surge in transactions volumes across Scotland’s cities, uncertainties caused by the UK’s departure from the European Union are likely to peak in 2018.

David Melhuish, director of Scottish Property Federation (SPF) said the wider issues on Brexit were “too clouded for a real picture” to emerge in the sector.

But he warned: “Clearly there is a mark down for the economy and that is probably the single biggest issue affecting real estate as we are a factor of the wider economy and therefore continued low growth will dampen demand and opportunities for the sector.”

Miller Matheson, executive director at CBRE Scotland, said: “We’ve been used to working under the cloud of political uncertainty for so many years up here that adding Brexit in hasn’t made a material difference over the course of the year.

“Clearly Brexit will come more into focus but that said, it’s hard to see how it’s going to derail what is a relatively stable situation at the moment.”

That stability has seen strong transaction volumes in Glasgow and Edinburgh, while in Aberdeen, there have been signs of investment returning after the oil and gas downturn began in 2014.

Mr Melhuish said that with little new space delivered across Scotland, the strength of the market has put upward pressures on rental prices.

“The lack of new office development or even redevelopment in the centres of Glasgow and Edinburgh looks set to continue as developers have to work hard to access finance,” he said.

Alasdair Steele, head of Scotland commercial at Knight Frank, said that Edinburgh – driven by the St. James Quarter development – would go from strength to strength in 2018, but its biggest challenge would be bringing forward new developments.

“There are currently precious few [developments] to alleviate the disparity between supply and demand in Edinburgh city centre, with the former at near all-time lows and the latter at a historic high,” he said. “That dynamic has created a strong buying market, with huge demand from investors.”

Overseas investors continued to dominate the market in 2017, and signs indicate this is set to continue, though institutional investors from the UK are looking north once more.

And this is something which may be required to keep the market buoyant after the Chancellor moved to scrap corporation tax relief on foreign owners of commercial property – with some exceptions, such as pension funds.

“Perhaps the most interesting aspect of the year is the return of UK money to Scottish markets, with the UK’s institutional funds again being active and reversing roles with overseas capital,” said Mr Melhuish. “This could be crucial with changes to tax rules for overseas investors on the cards.”

Mr Matheson said these funds would likely stick to lower risk products however.

“You’ll find [UK investors] bidding for offices let on long-leases for the government, or annuity type investments,” he said. “Because there is such a shortage of them UK wide, if they come up geography doesn’t come into it.”

These properties include New Waverley in Edinburgh, which was let to HMRC on a long-term basis, having been funded by Legal & General. In Glasgow, 3 Atlantic Quay, let to the UK Government, has also drawn the interest of annuity funds.

“For anything of any scale the majority of interest is overseas,” added Mr Matheson, who noted that when the building which houses the Apple store on Buchanan Street was made available, all 12 bids were from overseas, from the likes of retail tycoons Stefan Persson, of H&M and Amancio Ortega, owner of Zara, whose property vehicle Ponte Gadea prevailed.

On the occupier side, demand continues to outstrip supply, a persistent challenge for the sector. “We are still facing a significant issue in Glasgow,” said Mr Matheson. “There are still no speculative new builds so we are relying on good quality refurbs coming through.”

In Edinburgh, there is more grade A progress with The Mint building on St Andrew Square, 2 Semple Street and Capital Square all at various stages of completion.

Mr Matheson said he expected those to be pre-let in the “not too distant future” while Quartermile 3 is now fully pre-let before completion – helped by the 65,000 square feet taken by financial services giant State Street.

“As offices, you very rarely even now get a genuine pre-let,” said Mr Matheson. “You’ll get things letting during construction, but before a shovel is in the ground, it’s very unusually to have it let.”

With occupiers facing a lack of choice, it is leaning towards an investors’ market, where in Mr Matheson’s words, they “don’t need to roll over and do a soft deal for occupiers, because they will do a deal during construction. Occupiers will come because there’s lack of competing product”.

The decision by the Scottish Government to change business rates applicable on vacant buildings has been welcomed by the industry – with developers no longer subject to rates until their first tenants move in. “Whether it’s enough to fix the gap between the development and the funding side remains to be seen, but it’s certainly a step in the right direction, because the developer risk was significant,” said Mr Matheson.

On the wider issue of the Barclay Review into business rates, which made 30 recommendations, Mr Melhuish said: “The implementation of the Barclay Review will begin in earnest [this year] and it will be vital to get this right if we are to achieve a working platform for commercial development growth.”

This will have a particular benefit in industrial builds, he said, noting that positive movement was likely in 2018 for the first time in a few years.

“Industrial development is marginal at the best of times in its viability, and when you added in that void risk there was no way, it just wasn’t a risk worth taking,” added Mr Matheson. “Take that out and all of a sudden the industrial sector looks a bit more popular”.

Mr Steele said he expected the industrial market to recover, with prices gaining on those available south of the Border. “We anticipate that gap closing as the market continues to heat up and yields sharpen,” he said.

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UK commercial property volumes to exceed £50bn in 2018

Sales in commercial property are tipped to exceed £50bn for the sixth year running this year.

Transaction volumes in the UK’s commercial property sector reached £55bn last year, according to Colliers International. The real estate firm expects volumes to remain above £50bn in 2018.

And, although the capital continues to benefit from its stock of skyscrapers and traditional office spaces, the flexible working trend is set to continue growing in the year ahead.

In London, WeWork’s presence is expected to reach 3.5 million square feet, which is likely to put pressure on landlords to provide more flexible working spaces.

Meanwhile, the industrial sector is forecast to continue its growth as retailers seek out warehouse space for online products.

Colliers International has predicted industrial assets will be the top-performers for the year, especially in London and the South East. The competition for space could also lead to mixed developments for homes and warehouses.

Mark Charlton, head of UK research and forecasting at Colliers International, said: “Property performance is likely to moderate in 2018 as pricing remains pressured and rental growth modest, but on the up-side, the market will become less volatile, offering attractive, stable returns for investors.”

And, foreign investors are likely to maintain their interest in the UK market due to sterling’s devaluation.

“With sterling likely to remain competitive against the US dollar, further new entrants, particularly from Asia, are expected to enter UK market, attracted by buy-side currency plays,” said Tony Horrell, chief executive for the UK and Ireland at Colliers International.

“The UK will also continue to benefit from ongoing questions surrounding US and Chinese foreign and economic policies, as its reputation as a safe, liquid and transparent haven for investment and will continue to attract global institutional money.”

Source: City A.M.