Table of Contents
Executive Summary
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- The market
- Commercial property market showed resilience in 2018 amid political and economic uncertainty
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- Figure 1: Value of UK commercial property market, 2009-18
- Growth in investor-owned share of commercial property slows in 2018
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- Figure 2: Investor-owned share of UK commercial property market, 2014-18
- Investors reduce exposure to retail sector, shift to industrial and alternative assets
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- Figure 3: Segmentation of the UK commercial property market, 2014-18
- Market outlook turns more uncertain
- Companies and brands
- Overseas investors represent largest single investor type in the UK commercial property sector
- Share held by UK institutions has dropped over the last 10 years
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- Figure 4: Holdings in commercial property market, by investor type, 2018
- What we think
Issues and Insights
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- While investors are retrenching from struggling retail sector pockets of the sector offer opportunities
- The facts
- The implications
- Rapid growth in flexible workspace sector drives demand for offices
- The facts
- The implications
The Market – What You Need to Know
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- Struggling retail sector drags down performance of UK commercial property market in 2018
- Investor interest in prime commercial property remained robust in 2018
- But investor interest across different assets varies strongly
- Commercial property capital value expected to fall over the next two years
Market Size
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- Overview
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- Figure 5: Value of UK commercial property market, 2014-18, (£ billion)
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- Figure 6: Value of UK commercial property market, 2009-18
- Growth in investor-owned share of commercial property slows in 2018
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- Figure 7: Investor share of UK commercial property market, 2014-18, (£ billion and %)
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- Figure 8: UK commercial property floorspace and rental value, 2009-17
Market Segmentation
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- Segmentation by sector
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- Figure 9: Segmentation of the UK commercial property market, by sector, 2014-18, (£ billion)
- Figure 10: Sector share of investor-owned commercial property stock, 2018, (% of capital value)
- Segmentation by investor-type
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- Figure 11: Holdings in commercial property market, by investor type, 2014-18, (£ billion)
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- Figure 12: Investor commercial property market, by sector, South East and Rest of UK, 2017, (£ billion and % of total)
Office Sector
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- Offices represent largest sector of commercial property investment market
- Overseas investors own around half of all invested office stock in the UK
- Rapid growth in flexible workspace sector drives demand for offices
- Robust regional prime office market
- Market fundamentals for London offices remain strong
- London office supply pipeline
- Regional office supply pipeline
- Invested stock accounts for around 78% of UK office property stock
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- Figure 13: Capital value of the UK office market, 2014-18, (£ billion)
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- Figure 14: UK offices market, by region, 2018, (% of total)
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- Figure 15: Office property transactions in Great Britain, 2014-19
- Figure 16: Central London office property transactions by investor type, year-to-date 2019
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- Figure 17: Rest of UK office property transactions by investor type, year-to-date 2019
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- Figure 18: UK office floorspace and rental value, 2010-17
Retail Sector
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- Prolonged period of structural change in retail sector exerts downward pressure on property market
- Oversupply of retail space is leading to many units being repurposed
- Investors reduce exposure to retail sector
- Shopping centre developments embrace the leisure “experience” economy
- Retail assets represent an estimated 34% of total UK commercial property market, down from 40% in 2014
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- Figure 19: Capital value of the UK retail property market, 2014-18, (£ billion)
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- Figure 20: UK retail property market, by sector, 2018, (% of total)
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- Figure 21: Retail property transactions in Great Britain, 2014-19
- Figure 22: Shopping centre property transactions by investor type, year-to-date 2019
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- Figure 23: Retail warehouse property transactions by investor type, year-to-date 2019
- Figure 24: Shop/supermarket property transactions by investor type, year-to-date 2019
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- Figure 25: UK retail floorspace and rental value, 2010-17
Industrial Sector
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- Overview
- Momentum in rental growth is maintained in 2018
- Investor appetite for logistics property remains strong
- Supply-demand imbalance is driving considerable new development activity
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- Figure 26: Industrial speculative development under construction, February 2014-January 2019
- Industrial sector continues to show strong capital value growth in 2018
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- Figure 27: Capital value of the UK industrial property market, 2014-18, (£ billion)
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- Figure 28: UK industrial property market, by region, 2018, (% of total)
- Figure 29: Industrial property transactions in Great Britain, 2014-19
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- Figure 30: Industrial property transactions by investor type, year-to-date 2019
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- Figure 31: UK industrial floorspace and rental value, 2010-17
Other Commercial Sector
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- Overview
- Investor appetite in UK hotels sector remains strong
- UK hotel development market set for continued, albeit slower, growth
- Diverse leisure sector remains popular with investors, attracted by secure long-term income opportunities
- Capital value of ‘other’ commercial property sector up by an estimated 2% in 2018
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- Figure 32: Capital value of the UK other commercial property market, 2014-18, (£ billion)
- Figure 33: UK ‘other’ commercial property market, by sector, 2018, (% of total)
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- Figure 34: Property transactions in the leisure sector in Great Britain, 2014-19
- Figure 35: UK ‘other’ commercial floorspace and rental value, 2010-17
Regional Analysis
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- Regional analysis of non-domestic properties in England & Wales
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- Figure 36: Number of non-domestic rateable properties in England & Wales, by sector and region, as at 1 April 2017, (000s and % of total)
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- Figure 37: Rateable value of non-domestic properties in England & Wales, by sector and region, as at 1 April 2017, (£ billion and % of total)
- Regional analysis of commercial property transactions
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- Figure 38: Commercial property transactions in Great Britain, by region, 2015-19, (£ million)
- Figure 39: Regional importance in commercial property transactions, 2016-18
Market Forecast
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- Outlook for commercial property market turns more cautious
- Investor sentiment wanes amid ongoing political and economic uncertainty
- Investor demand focused on secure income streams
- Expansion into alternative sectors is expected to remain a key trend
- Commercial property capital value growth expected to remain restricted
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- Figure 40: Forecast of UK commercial property market, 2018-22, (£ billion at 2018 prices)
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- Figure 41: Development of the UK commercial property capital value, 2014-18 (historic) and 2019-23 (forecast)
- Figure 42: Projected investor share of UK commercial property market, 2019-23, (£ billion at 2018 prices)
- Industrial property and alternatives expected to continue to outperform market
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- Figure 43: Forecast segmentation of the UK commercial property market, 2018-22, (£ billion at 2018 prices)
- Figure 44: Forecast segmentation of the UK commercial property market, 2019-23
The Impact of the Economy
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- GDP growth slowed to its lowest rate for six years in 2018
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- Figure 45: Annual GDP growth rate, 2010-18
- GDP growth expected to remain subdued in 2019
- Uncertainty continues to cloud businesses’ outlook
- Trends in average lease lengths
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- Figure 46: Average length of leases, by tenant type, 2018
- Business confidence remains low
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- Figure 47: Business confidence index, Q1 2018-Q2 2019
Market Trends
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- Development of commercial property yields
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- Figure 48: Prime market yields, by sector, 2016-19, (%)
- Rental price developments
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- Figure 49: Prime office rents in the UK, December 2011-December 2018
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- Figure 50: Prime retail rents in the UK, December 2011- December 2018
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- Figure 51: Prime industrial rents in the UK, December 2011- December 2018
- Trends in commercial property lending
- The commercial property lending market has seen increased diversification and specialisation over recent years
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- Figure 52: Outstanding debt secured by commercial property lender, by lender type, 2018, (% of total)
- New loan originations are up 12% in 2018, despite Brexit uncertainty
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- Figure 53: Allocation of new loans originations, by lender-type, 2018, (% of total)
Market Drivers
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- Economic factors
- The commercial property performance cycle
- Low interest rate environment provides positive impetus for investment market
- UK Purchasing Manager Index (PMI) for Services Industries
- UK Manufacturing Purchasing Manager Index (PMI)
- Retail sales and rise in online sales
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- Figure 54: Growth of value of retail sales at current prices seasonally adjusted, 2011-17, (% change on previous year)
- Other factors
- Impact of planning laws on commercial property supply
- Supply and demand factors
- Business rate revaluations contribute to increased retail store closure rates in some regions
- Non-UK investors eligible for Capital Gains Tax (CGT) from April 2019
- Return on Property Investment
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- Figure 55: Annual property returns, by sector, 2014-18, (% change)
- Government Hubs programme boosts regional office take-up in the short term
- Non-residential property transactions
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- Figure 56: UK non-residential property transaction completions, by country, 2014-18
- Figure 57: UK non-residential property transaction completions, 2013-18
- Brexit uncertainty starts to impact commercial construction output
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- Figure 58: Long-term trend in private commercial construction, 1970-2018
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- Figure 59: Segmentation of private commercial construction output, 2014-18 (£ million)
- Brexit effect on industrial construction output not yet evident
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- Figure 60: Long-term trend in private industrial construction, 1970-2018
- Figure 61: Segmentation of private industrial construction output, 2014-18 (£ million)
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
- Share held by UK institutions has dropped over the last 10 years
- REITs retrench from embattled retail sector
Industry Structure
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- Overview
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- Figure 62: Holdings in commercial property market, by investor type, 2018, (% of total investor-owned commercial property stock)
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- Figure 63: UK investor share and overseas investor share in each commercial property sector, 2017
- Overseas Investors
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- Figure 64: Overseas holdings in commercial property market, by investor type, 2017, (% of total)
- REITs
- Institutional Investors
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- Figure 65: Holdings in buildings, property, land and new construction work by institutional groups, 2013-17
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- Figure 66: 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 and outlook
- Financial performance
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- Figure 67: Financial analysis of British Land, 2015-19, (£ million)
- Bruntwood
- Company strategy
- Financial performance
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- Figure 68: Financial analysis of Bruntwood, 2014-18, (£ million)
- Grosvenor Group
- Company strategy and outlook
- Financial performance
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- Figure 69: Financial analysis of Grosvenor Group, 2014-18, (£ million)
- Hammerson
- Hammerson to exit retail parks
- Company strategy
- Financial performance
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- Figure 70: Financial analysis of Hammerson, 2014-18, (£ million)
- Intu Properties
- Company strategy and outlook
- Financial performance
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- Figure 71: Financial analysis of Intu Properties, 2014-18, (£ million)
- Landsec
- Company strategy and outlook
- Financial performance
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- Figure 72: Financial analysis of Land Securities, 2015-19, (£ million)
- Segro
- Company strategy
- Financial performance
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- Figure 73: Financial analysis of Segro, 2014-18, (£ million)
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Methodology
Further Sources and Contacts
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- Trade associations
- Trade magazines
- Trade events
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