Table of Contents
Executive Summary
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- The market
- Capital value of UK commercial property down by an estimated 3% in 2019
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- Figure 1: Value of UK commercial property market, 2010-19
- Investment activity slows in 2019
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- Figure 2: Investor-owned share of UK commercial property market, 2015-19
- Offices account for nearly a third of UK commercial property market
- Retail sector set to be the hardest hit by the COVID-19 crisis
- Industrial/logistics sector looks well placed to ride out COVID-19 storm
- Capital value of ‘other’ commercial property sector down by an estimated 1% in 2019
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- Figure 3: Segmentation of the UK commercial property market, 2015-19
- Capital value of UK commercial property expected to fall by 12% in 2020
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- Figure 4: Forecast of commercial property market compared with expectations prior to COVID-19, 2019-24
- Impact of COVID-19 on the UK commercial property market
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- Figure 5: Expected impact of COVID-19 on UK commercial property, short, medium and long term, 7 July 2020
- Companies and brands
- Overseas investors represent largest single investor type in the UK commercial property sector
- REITs reduce exposure to embattled retail sector
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- Figure 6: Holdings in commercial property market, by investor type, 2018
- What we think
The Impact of COVID-19 on Commercial Property
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- The market
- Retail sector
- Office sector
- Industrial/logistics sector
- Other commercial property
- Companies and brands
- Retail landlords set to be hit hard by COVID-19
- Commercial property companies expected to incorporate more flexible workspace in their office portfolio
- Investor demand set to remain focused on secure, long-term income streams
- COVID-19: Market context
Issues and Insights
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- COVID-19 presents challenges and opportunities for flexible workspace sector
- The facts
- The implications
- Investors set to further shy away from retail property sector, as COVID-19 accelerates structural changes, but pockets of opportunity remain
- The facts
- The implications
The Market – What You Need to Know
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- Capital value of UK commercial property market falls by an estimated 3% in 2019
- Investment activity slows in 2019
- Offices account for nearly a third of UK commercial property market
- Retail set to be the hardest-hit sector by the COVID-19 crisis
- Industrial/logistics sector looks well placed to ride out COVID-19 storm
- Capital value of ‘other’ commercial property sector down by an estimated 1% in 2019
Market Size
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- Overview
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- Figure 7: Value of UK commercial property market, 2015-19 (£ billion)
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- Figure 8: Value of UK commercial property market, 2010-19
- Investor demand in UK commercial property falls in 2019
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- Figure 9: Investor share of UK commercial property market, 2014-19 (£ billion and %)
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- Figure 10: UK commercial property floorspace and rental value, 2010-18
Market Segmentation
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- Segmentation by sector
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- Figure 11: Segmentation of the UK commercial property market, by sector, 2015-19 (£ billion)
- Figure 12: Sector share of investor-owned commercial property stock, 2019 (% of capital value)
- Segmentation by investor type
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- Figure 13: Holdings in commercial property market, by investor type, 2015-19 (£ billion)
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- Figure 14: Investor commercial property market, by sector, South East and Rest of UK, 2018 (£ billion and % of total)
Office Sector
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- Offices represent largest sector of commercial property investment market
- Overseas investors own half of all invested office stock in the UK
- Recent growth in office market driven by rapid expansion of flexible workspace sector
- COVID-19 presents challenges and opportunities for flexible workspace providers
- Regional prime office market well placed prior to COVID-19
- London office take-up slows prior to COVID-19
- London office investment market
- London office construction hits all-time high just prior to COVID-19
- Regional office supply pipeline
- Invested stock accounts for over three quarters of UK office property stock
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- Figure 15: Capital value of the UK office market, 2015-19 (£ billion)
- Figure 16: Value of UK invested office stock, by region, 2018 (£ billion and % of total)
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- Figure 17: Office property transactions in Great Britain, 2015-20
- Figure 18: Central London office property transactions, by investor type, year-to-date 2020
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- Figure 19: Rest of UK office property transactions, by investor type, year-to-date 2020
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- Figure 20: UK office floorspace and rental value, 2011-18
Retail Sector
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- COVID-19 set to accelerate structural change in retail sector
- Rising vacancy rate is leading to more retail space being repurposed
- Downward trend in retail investment activity to be exacerbated by COVID-19
- Retail parks expected to emerge as strongest sub-sector from COVID-19 crisis
- High street market unlikely to fully recover as more retailers face collapse
- Outlook for Central London retail investment remains muted
- Shopping centre investment hits low in 2019
- Retail sector’s share of commercial property market falls from 40% in 2014 to 31% in 2019
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- Figure 21: Capital value of the UK retail property market, 2015-19 (£ billion)
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- Figure 22: Value of UK invested retail stock, by sector, 2018 (£ billion and % of total)
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- Figure 23: Retail property transactions in Great Britain, 2015-20
- Figure 24: Shopping centre property transactions, by investor type, year-to-date 2020
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- Figure 25: Retail warehouse property transactions, by investor type, year-to-date 2020
- Figure 26: Shop/supermarket property transactions, by investor type, year-to-date 2020
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- Figure 27: UK retail floorspace and rental value, 2011-18
Industrial Sector
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- Overview
- Take-up in industrial and logistics property sector falls moderately in 2019
- Industrial and logistics sector looks well placed to ride out COVID-19 storm
- Logistics investment market remained resilient in 2019
- Lack of supply remains an issue
- Capital value growth in industrial sector slows to 2% in 2019
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- Figure 28: Capital value of the UK industrial property market, 2015-19 (£ billion)
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- Figure 29: UK industrial property market, by region, 2019 (% of total)
- Figure 30: Industrial property transactions in Great Britain, 2015-20
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- Figure 31: Industrial property transactions, by investor type, year-to-date 2020
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- Figure 32: UK industrial floorspace and rental value, 2011-18
Other Commercial Sector
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- Overview
- Hotels investment market remained robust in 2019
- Investors attracted to diverse leisure sector by secure long-term income opportunities
- Line between retail and leisure is becoming increasingly blurred
- Strong growth in “experiential” leisure
- Health and fitness centres set to face a challenging time as country emerges from COVID-19
- UK cinemas sector shows robust performance in 2019
- Capital value of ‘other’ commercial property sector down by an estimated 1% in 2019
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- Figure 33: Capital value of the UK other commercial property market, 2015-19 (£ billion)
- Figure 34: UK ‘other’ commercial property market, by sector, 2018 (% of total)
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- Figure 35: Property transactions in the leisure sector in Great Britain, 2015-20
- Figure 36: UK ‘other’ commercial floorspace and rental value, 2011-18
Regional Analysis
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- Regional analysis of non-domestic properties in England & Wales
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- Figure 37: Number of non-domestic rateable properties in England & Wales, by sector and region, as at 31 March 2019 (000s and % of total)
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- Figure 38: Rateable value of non-domestic properties in England & Wales, by sector and region, as at 31 March 2019 (£ billion and % of total)
- Regional analysis of commercial property transactions
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- Figure 39: Commercial property transactions in Great Britain, by region, 2016-20 (£ million)
- Figure 40: Regional importance in commercial property transactions, 2017-19
Market Forecast
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- COVID-19 to severely disrupt commercial property market in 2020
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- Figure 41: Expected impact of COVID-19 on UK commercial property, short, medium and long term, 7 July 2020
- Investor demand set to remain focused on secure, long-term income streams
- Commercial property capital value expected to fall by 12% in 2020
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- Figure 42: Forecast of commercial property market compared with expectations prior to COVID-19, 2019-24
- Industrial property and alternatives expected to continue to outperform market
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- Figure 43: Forecast segmentation of the UK commercial property market, pre-COVID and COVID-adjusted (£ billion), 2020-24
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- Figure 44: Forecast segmentation of the UK commercial property market (COVID-adjusted), 2019-24
Market Trends
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- Development of commercial property yields
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- Figure 45: Prime market yields, by sector, 2017-20 (%)
- Rental price developments
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- Figure 46: Prime office rents in the UK, December 2011-September 2019
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- Figure 47: Prime retail rents in the UK, December 2011-September 2019
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- Figure 48: Prime industrial rents in the UK, December 2011-September 2019
- Trends in commercial property lending
- New loan originations down by 12% in 2019
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- Figure 49: Allocation of new loans originations, by lender type, 2019 (£ million and % of total)
Market Drivers
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- Economic factors
- Sluggish economic growth prior to COVID-19
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- Figure 50: UK GDP growth rate, 2012-19, (Annual % change)
- UK economy could shrink by 14% in 2020
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- Figure 51: Forecast GDP development based on Bank of England illustrative scenario, 2020-22 (% change)
- Bank rate cut to historic low of 0.1% in response to COVID-19
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- Figure 52: Bank rate, 2008-20, by date of adjustment
- UK Purchasing Managers’ Index (PMI) for Services Industries
- UK Manufacturing Purchasing Managers’ Index (PMI)
- Business confidence suffered before COVID-19
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- Figure 53: ICAEW UK National Business ConfidenceTM index, Q1 2014-Q1 2020
- Slight improvement in business investment intentions at the start of 2020 squashed by COVID-19 impact
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- Figure 54: UK business investment, £ million, Q1 2015-Q4 2019
- Trends in average lease lengths
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- Figure 55: Average length of leases, by tenant type, 2019
- Retail sales and rise in online sales
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- Figure 56: Growth of value of retail sales at current prices seasonally adjusted, 2013-19 (% change on previous year)
- Figure 57: Average weekly value for all retailing and for internet sales, January 2016-April 2020
- Other factors
- Impact of planning laws on commercial property supply
- Supply and demand factors
- Business rate revaluations contribute to the decline in high street retailers in some regions
- Tax changes for non-resident investors in UK commercial property
- Return on Property Investment
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- Figure 58: Annual property returns, by sector, 2015-19 (% change)
- Non-residential property transactions fall
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- Figure 59: UK non-residential property transaction completions (non-seasonally adjusted), by country, 2016-20
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- Figure 60: UK non-residential property transaction completions (seasonally adjusted), 2015-20
- Commercial construction output slipped in 2018 with some recovery in 2019
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- Figure 61: Long-term trend in private commercial construction, 1970-2019
- Figure 62: Commercial construction output, 2015-19
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- Figure 63: Segmentation of commercial construction output, 2015-19 (£ million)
- Industrial construction output boosted by investment in warehousing
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- Figure 64: Long-term trend in private industrial construction, 1970-2019
- Figure 65: Industrial construction output, 2015-19
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- Figure 66: Segmentation of industrial construction output, 2015-19
Companies and Brands – What You Need to Know
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- Overseas investors represent largest single investor type in the UK commercial property sector
- REITs reduce exposure to embattled retail sector
- Intu enters administration in June 2020
Industry Structure
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- Overview
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- Figure 67: Holdings in commercial property market, by investor type, 2019 (% of total investor-owned commercial property stock)
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- Figure 68: UK investor share and overseas investor share in each commercial property sector, 2018
- Overseas Investors
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- Figure 69: Overseas holdings in commercial property market, by investor type, 2018 (% of total)
- REITs
- Institutional Investors
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- Figure 70: Holdings in buildings, property, land and new construction work by institutional groups, 2013-17
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- Figure 71: Net investment in buildings, property, land and new construction work by institutional groups, 2014-18
Company Profiles
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- British Land
- Company strategy
- Impact of COVID-19
- Financial performance
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- Figure 72: Financial analysis of British Land, 2016-20 (£ million)
- Bruntwood
- Company strategy
- Financial performance
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- Figure 73: Financial analysis of Bruntwood, 2015-19 (£ million)
- Grosvenor Group
- Company strategy and outlook
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- Figure 74: Financial analysis of Grosvenor Group, 2015-19 (£ million)
- Hammerson
- COVID-19 hampers Hammerson’s plan to exit retail parks
- Company strategy
- Impact of COVID-19
- Financial performance
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- Figure 75: Financial analysis of Hammerson, 2015-19 (£ million)
- Intu Properties
- Company strategy
- Intu enters administration in June 2020
- Financial performance
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- Figure 76: Financial analysis of Intu Properties, 2015-19 (£ million)
- Landsec
- Company strategy and outlook
- Impact of COVID-19
- Financial performance
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- Figure 77: Financial analysis of Land Securities, 2016-20 (£ million)
- SEGRO
- Company strategy
- Impact of COVID-19
- Financial performance
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- Figure 78: Financial analysis of SEGRO, 2015-19 (£ million)
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Methodology
Further Sources and Contacts
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- Trade associations
- British Property Federation
- The Association of Real Estate Funds
- British Council for Offices
- The Commercial Real Estate Finance Council Europe
- The Investment Association
- The Investment Property Forum
- Trade magazines
- Estates Gazette
- Property Magazine International
- Property Week
- Property Wire
- Trade events
- RICS Commercial Property Conference
- MIPIM UK 2020
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