Table of Contents
Executive Summary
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- Impact of COVID-19 on the commercial property sector
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- Figure 1: Short-, medium- and long-term impact of COVID-19 on commercial property, (prepared on 24 June 2021)
- The market
- Capital value of UK commercial property down by an estimated 7% in 2020
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- Figure 2: Value of UK commercial property market, 2011-20
- Investment market severely disrupted by COVID-19
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- Figure 3: Investor-owned share of UK commercial property market, 2016-20
- Offices account for nearly a third of UK commercial property market
- Retail sector’s share of commercial property market falls from 40% in 2014 to 27% in 2020
- Industrial/logistics sector shows resilience
- Capital value of ‘other’ commercial property sector down by an estimated 12% in 2020
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- Figure 4: Segmentation of the UK commercial property market, 2016-20
- Commercial property capital value expected to recover from 2022 onwards
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- Figure 5: Forecast of commercial property market compared with expectations prior to COVID-19, 2020-25
- Companies and brands
- Overseas investors represent largest single investor type in the UK commercial property sector
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- Figure 6: Holdings in commercial property market, by investor type, 2020 (% of total investor-owned commercial property stock)
- ESG factors moving up the corporate agenda
Issues and Insights
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- While the retail sector has been hit hard by the pandemic, investment opportunities remain
- ESG factors increase in importance in commercial property industry
The Market – Key Takeaways
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- Capital value of UK commercial property market down by an estimated 7% in 2020
- Investment market severely disrupted by COVID-19
- Investors are scaling back their retail exposure
- Logistics sector remains highly attractive
- COVID-19 has introduced a significant disruptor to office market
- Alternatives sector expected to rebound as country emerges from COVID-19
Market Size
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- Overview
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- Figure 7: Value of UK commercial property market, 2016-20 (£ billion)
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- Figure 8: Value of UK commercial property market, 2011-20
- Investment market severely disrupted by COVID-19
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- Figure 9: Investor share of UK commercial property market, 2015-20 (£ billion and %)
- Non-residential floor space and rental values
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- Figure 10: Non-domestic property floorspace and rental value in England and Wales, 2012-20
Market Segmentation
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- Segmentation by sector
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- Figure 11: Segmentation of the UK commercial property market, by sector, 2016-20 (£ billion)
- Figure 12: Sector share of investor-owned commercial property stock, 2020 (% of capital value)
- Segmentation by investor type
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- Figure 13: Holdings in commercial property market, by investor type, 2016-20 (£ 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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- Overview
- Overseas investors own half of all invested office stock in the UK
- Flexible office space set for further strong growth post-COVID-19
- More traditional property owners and landlords to enter flexible workspace market
- 2020 sees low take-up in regional office market
- London office take-up stalls in 2020
- London office investment market expected to pick up in second half of 2021
- London office construction activity remains above the long-term average
- London grade A office space expected to be well placed to adapt to new occupational models post 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, 2016-20 (£ billion)
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- Figure 16: Office property transactions in Great Britain, 2016-21
- Figure 17: Central London office property transactions, by investor type, 2021
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- Figure 18: Rest of UK office property transactions, by investor type, 2021
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- Figure 19: office floorspace and rental value in England and Wales, 2012-20
Retail Sector
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- COVID-19 accelerates structural change in the retail sector
- Move towards retail space repurposing and mixed-use spaces
- Retail parks show resilience during COVID-19 crisis
- Central London retail investment market subdued in 2020
- Shopping centre investment records worst year on record in 2020
- Supermarkets provide secure investment alternative
- Retail sector’s share of commercial property market falls from 40% in 2014 to 27% in 2020
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- Figure 20: Capital value of the UK retail property market, 2016-20 (£ billion)
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- Figure 21: Retail property transactions in Great Britain, 2016-21
- Figure 22: Shopping centre property transactions, by investor type, 2021
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- Figure 23: Retail warehouse property transactions, by investor type, 2021
- Figure 24: Shop/supermarket property transactions, by investor type, 2021
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- Figure 25: retail floorspace and rental value in England and Wales, 2012-20
Industrial Sector
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- Overview
- Amazon drives record take-up in the industrial and logistics property sector
- Industrial and logistics investment volumes up by 11% in 2020
- Supply shortage remains an issue
- Industrial sector is the only main commercial property class to record capital value growth in 2020
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- Figure 26: Capital value of the UK industrial property market, 2016-20 (£ billion)
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- Figure 27: UK industrial property market, by region, 2020 (% of total)
- Figure 28: Industrial property transactions in Great Britain, 2016-21
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- Figure 29: Industrial property transactions, by investor type, 2021
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- Figure 30: industrial floorspace and rental value in England and Wales, 2012-20
Other Commercial Sector
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- Overview
- UK hotel investment market expected to see beginning of strong recovery in 2021
- 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
- Capital value of ‘other’ commercial property sector down by an estimated 12% in 2020
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- Figure 31: Capital value of the UK other commercial property market, 2016-20 (£ billion)
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- Figure 32: Property transactions in the leisure sector in Great Britain, 2016-21
Regional Analysis
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- Regional analysis of non-domestic properties in England and Wales
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- Figure 33: Number of non-domestic rateable properties in England & Wales, by sector and region, 2020 (000s and % of total)
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- Figure 34: Rateable value of non-domestic properties in England & Wales, by sector and region, 2020 (£ million and % of total)
- Regional analysis of commercial property transactions
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- Figure 35: Commercial property transactions in Great Britain, by region, 2017-21 (£ million)
- Figure 36: Regional importance in commercial property transactions, 2018-20
Market Forecast
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- Short-, medium- and long-term impact of COVID-19 on the commercial property sector
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- Figure 37: Short-, medium- and long-term impact of COVID-19 on commercial property, (prepared on 24 June 2021)
- Market drivers and assumptions
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- Figure 38: Key economic drivers affecting MBD’s market forecast, 2019-2025 (prepared on 6 May 2021)
- Forecast methodology
- Commercial property capital value expected to recover from 2022 onwards
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- Figure 39: Forecast UK commercial property market, 2020-25
- Industrial/logistics sector set to continue to outperform market
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- Figure 40: Forecast segmentation of the UK commercial property market, 2021-25 (£ billion)
- Figure 41: Forecast segmentation of the UK commercial property market (COVID-19-adjusted), 2021-25
- Investor demand set to remain focused on secure, long-term income streams
Market Trends
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- Environmental, social and corporate governance (ESG) factors moving up the corporate agenda
- Development of commercial property yields
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- Figure 42: Prime market yields, by sector, 2018-21 (%)
- Rental price developments
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- Figure 43: Prime office rents in the UK, 2011-2020
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- Figure 44: Prime retail rents in the UK, 2011-2020
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- Figure 45: Prime industrial rents in the UK, 2011-2019
- Figure 46: Prime industrial rents (Big Box) in the UK, 2020
- Trends in commercial property lending
Market Drivers
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- Economic factors
- UK economy contracts by record 9.8% in 2020
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- Figure 47: Annual GDP growth rate, 2015- 20, (annual % change)
- Economic recovery gathering pace, but longer-term outlook less clear
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- Figure 48: Expectations of GDP annual percentage change, 2021-25
- Bank rate remains at historic low of 0.1%
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- Figure 49: Bank rate, 2008-20, by date of adjustment
- Businesses are becoming more confident
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- Figure 50: ICAEW UK National Business ConfidenceTM index, 2014-2021
- Business investment
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- Figure 51: UK business investment, £ million, 2015-2020
- COVID-19 escalates trend towards shorter leases
- COVID-19 accelerates shift to online retail
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- Figure 52: Growth of value of retail sales at current prices seasonally adjusted, 2016-20 (% change on previous year)
- Figure 53: Average weekly value for all retailing and for internet sales, January 2019-April 2021
- Other factors
- Planning law changes
- Government relaxes planning rules for converting unused commercial buildings into homes
- 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
- Property returns fall across all main commercial property classes in 2020, except for industrial assets
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- Figure 54: Annual property returns, by sector, 2016-20 (% change)
- Non-residential property transactions
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- Figure 55: UK non-residential property transaction completions, by country, 2016-20
- Figure 56: UK non-residential property transaction completions, January 2017-April 2021
- Commercial construction - long-term susceptibility to recession
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- Figure 57: Long-term development of commercial construction, 1970-2020
- Figure 58: Commercial construction output, 2015-25
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- Figure 59: Segmentation of commercial construction, 2015-20 (£ million)
- Industrial construction - COVID-19 disrupts a buoyant market
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- Figure 60: Long-term development of industrial construction, 1970-2020
- Figure 61: Industrial construction output, 2015-25
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- Figure 62: Segmentation of industrial construction, 2015-20 (£ billion)
Companies and Brands – Key Takeaways
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- Overseas investors represent largest single investor type in the UK commercial property sector
- REITs, which are more exposed to the retail sector, look to diversify their portfolio
- ESG factors moving up the corporate agenda
Industry Structure
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- Overview
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- Figure 63: Holdings in commercial property market, by investor type, 2020 (% of total investor-owned commercial property stock)
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- Figure 64: UK investor share and overseas investor share in each commercial property sector, 2018
- Overseas investors
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- Figure 65: Overseas holdings in commercial property market, by investor type, 2018 (% of total)
- REITs
- Collective investment schemes
- Institutional investors
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- Figure 66: Holdings in buildings, property, land and new construction work by institutional groups, 2013-18
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- Figure 67: Net investment in buildings, property, land and new construction work by institutional groups, 2014-18
Company Profiles
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- British Land
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- Figure 68: British Land portfolio weighting, as at 31 March 2021 (£m and % of total)
- Company strategy
- Financial performance
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- Figure 69: Financial analysis of British Land, 2017-21 (£ million)
- Bruntwood
- Company strategy
- Financial performance
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- Figure 70: Financial analysis of Bruntwood, 2016-20 (£ million)
- Grosvenor Group
- Company strategy and outlook
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- Figure 71: Financial analysis of Grosvenor Group, 2016-20 (£ million)
- Hammerson
- Hammerson disposes of its retail parks portfolio
- Company strategy
- Financial performance
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- Figure 72: Financial analysis of Hammerson, 2016-20 (£ million)
- Landsec
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- Figure 73: Landsec portfolio weighting, by market value, as at 31 March 2021 (% of total)
- Company strategy and outlook
- Financial performance
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- Figure 74: Financial analysis of Land Securities, 2017-21 (£ million)
- SEGRO
- Company strategy
- Financial performance
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- Figure 75: Financial analysis of SEGRO, 2015-20 (£ 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 Corporate Real Estate & Facilities Management Conference 2021
- MIPIM September Edition
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