Category Archives: News

Overseas investors become largest investors in UK commercial property

Overseas investors have for the first time overtaken UK institutions to become the largest owners of UK commercial property, new data from the Property Industry Alliance has revealed today.

The value of portfolios held by overseas owners has more than doubled (129%) over the last decade to £94bn, and particularly in 2013 when sovereign wealth funds were particularly active.

The increase means that overseas investors now own almost one quarter (24%) of all commercial property investment in the UK, the Property Data Report 2014 revealed, with three-quarters of this investment in London.

By contrast the total owned by UK institutions fell by 16% over the decade to £75bn, representing just under one-fifth (19%) of the £385bn invested in commercial buildings.

Sir Robert Finch, Chairman of the Property Industry Alliance, said: “The annual Property Data Report is an invaluable resource which sets out clearly key facts about commercial property and shows the crucial role it plays in the UK’s economy. Aside from its contribution to the economy, which the report shows to be sizeable, the commercial property industry is also a platform for virtually all the country’s other major industries and a significant contributor to the financing of retirement. Its attractiveness to investors from both the UK and overseas is therefore to be welcomed.”

The research also revealed that:

  • The commercial property industry directly employs almost 900,000 people, and contributes about £54bn to the UK economy, up from £42bn in 2012, equal to the telecoms and transport sectors combined,
  • It also contributes almost £14bn in direct taxes to the Exchequer, accounting for one quarter of its GVA – proportionately a greater tax burden than on the economy as a whole due to property taxes such as stamp duty land tax,
  • Average rental increases over the last 10 years in the office (1.1%) and retail (0.5%) sectors have increased at a much slower rate than other business costs, and well below the rate of retail price inflation (3.3%),
  • Drawing on recent work by the Investment Property Forum, the report highlighted that of the £683bn total UK commercial stock, retail is the largest sector by value (£305bn), followed by offices (£195bn), and then industrial property (£126bn). Other commercial property, including hotels and leisure, was valued at £58bn.

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Carbon Penalties and Incentives Report launched

Government policy designed to reduce carbon emissions from commercial buildings need to be better understood, more efficiently monitored and easier to enforce, reveals a new report launched today by the Green Construction Board and the Property Industry Alliance, representing the £647bn commercial property industry, and the Government.

The ‘Carbon Penalties and Incentives Report’, produced by Deloitte, identifies that the inefficient distribution of policies, their perceived complexity and poor enforcement are the main barriers to achieving green growth and reducing emissions in the commercial property industry.

The report makes a number of recommendations for improving the policy framework:

  • Real estate professionals need to develop a better understanding of environmental matters, and their implications, to integrate them alongside standard legal and valuation concerns. Providers of real estate education need to integrate this into their programmes. The report indicates that there are economic opportunities that may arise from catalysing a green construction and retrofit industry. The study found emerging evidence of benefits for owners and occupiers of green buildings such as lower operating costs, lower risk exposure and increased marketability.
  • Better environmental performance data is needed to inform owners and occupiers in their choice of business premises. This is currently not routinely collected and buildings are not routinely labelled. Better data could also help to inform better policy making in the future, and build understanding of the effect of existing policies.
  • Policies which require defined actions are preferable to policies which require industry to set in place processes or gather information without any compulsion to act on the findings. The Report says that policies which focus on setting standards are cost-effective for Government to implement and relatively easily understood by the industry.
  • The current policy framework is perceived by industry to be complex and more functional linkages between policies could be achieved by ‘bundling’ them together in mutually reinforcing packages of standards, penalties or incentives and labelling. This would have the effect of reducing complexity and the time commitment attached to compliance.
  • There is a need for a more systematic and collaborative approach to appraising the effectiveness and impact of green policies and regulations. Experts from both industry and Government should monitor these on an ongoing basis.

Liz Peace, Chief Executive of the BPF, said: ‘The energy performance legacy of the existing commercial stock is a challenge too large for the industry or Government to face alone and we need to be well equipped with the knowledge of what works and what does not, if we are to tackle this head on. This research allows us to consider fully the effectiveness of current policy instruments and provides a platform for the future course of Government and industry initiatives.’

Bill Hughes, Managing Director of Legal & General Property and Chairman of the Steering Group overseeing the Project, said: ‘The conclusions have been striking, since they show a clear preference for regulation of markets and policies which articulate clear trajectories toward 2050 emissions targets. It is essential that industry works together with Government to ensure that policy that is implemented doesn’t lend itself to unintended consequences in behaviour and instead is carefully aligned to driving real and achievable results throughout the sector.’

Miles Keeping, Partner at Deloitte Real Estate, said: ‘This research has clearly shown that there is an increasing expectation within the market that a commercial property’s investment-worth will be affected by how well it is protected from environmental risk. Furthermore, it also recognises the opinion of the market that if this important component of the UK economy is to prosper it needs effective policies to reduce energy consumption and regulate carbon emissions.’

Michael Green, Chief Executive of the British Council of Shopping Centres, said: ‘BCSC has long argued that the incremental layering of climate change policy has caused confusion and uncertainty in the commercial property industry. This important research shows the need for long term signals to allow the sector and its investors to plan against environmental risk.’

Paul McNamara for the IPF said: ‘Effective Government policies should work with rather than against the ‘grain’ of the market. This study should help Government to better understand how to do this with respect to green policies for the commercial property market’.

Alexandra Notay, ULI UK Policy Director, said: ‘ULI has led a number of programmes since 2008 focused on providing impartial information and reducing the confusion that surrounds the issue of energy efficiency and commercial property. We are particularly keen to support the recommendations in this report that might enable existing policies to be “bundled” together to give the real estate industry greater clarity in how they can achieve reductions in carbon emissions.

Richard Kauntze, Chief Executive, British Council for Offices, said: “The BCO welcomes the recommendations within this research. We are increasingly seeing demand in the market place for more sustainable and high-performance buildings, with occupiers and investors paying close attention to these issues. Better environmental performance data in the marketplace will help occupiers to make more informed choices regarding their business premises.”

The report’s appendices are available here.

Retail investors return to UK property

Increased interest from collective investment schemes that invest in UK commercial property has seen retail investors close the gap on the institutions and overseas investors as the largest owners of UK commercial property in 2012, according to a new report by the Property Industry Alliance.

The report reveals that the UK institutions – insurance companies and pensions funds – and overseas investors share of the £569bn UK commercial property market fell 1 per cent each to 22 per cent each in 2012.

However, collective invest schemes – such as managed funds and property unit trusts – saw their share increase 2 per cent to 20 per cent of the market, up 127% since 2003. Most of the capital invested in UK commercial property is used to provide pensions and savings for UK households.

Sir Robert Finch, Chairman of the Property Industry Alliance, said: “While overseas investors remain on course to become the single largest owners of UK commercial property, the appetite shown by small institutional and retail investors is a real boost to the industry, as well as highlighting a shift in personal savings habits towards unit trusts.”

Property Industry Alliance Data Report also reveals:

  • Having accounted for less than a fifth of retail in 1993, the value of out-of-town retail property is now comparable to that in towns;
  • The commercial property industry has been amongst the worst affected by the recession, shedding 200 thousand jobs since December 2008 and seeing a full percentage point drop in its share of national GDP;
  • As a business cost rent remains very low relative to staff costs at 7 per cent and 5 per cent of office and retail space respectively;
  • Approximately 15 per cent of the UK’s CO2 emissions are directly and indirectly related to commercial buildings.

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Property Industry Alliance gains influence

The Urban Land Institute (ULI) and the Association of British Insurers (ABI) have become members of the Property Industry Alliance (PIA).

The PIA brings together leading bodies involved in commercial property to give the sector a strong voice on a wide range of issues, including ensuring the contribution of property both to the economy and to the personal wealth of British citizens is fully understood. It is also influential in areas such as property debt, REITs, sustainability and occupier satisfaction.

Membership of the PIA includes the Association of British Insurers,  Association of Real Estate Funds (AREF), British Council for Offices (BCO), British Council of Shopping Centres (BCSC), British Property Federation (BPF), Investment Property Forum (IPF), Royal Institution of Chartered Surveyors (RICS) and Urban Land Institute.

Sir Robert Finch, Chairman of the PIA, said: “I am delighted that the ULI and ABI  are joining the PIA. Their membership will broaden and  strengthen the PIA, enabling it  to play an even more effective role in co-ordinating the work of the leading property industry bodies.    The ULI will bring an international, multi-disciplinary perspective to the PIA and a keen understanding of urban development issues based on producing over 600 advisory service panel reports for cities over the last thirty years. The ABI will  provide an invaluable link for the PIA with  the insurance sector, one of the biggest sources of investment in the property industry. Membership of the PIA will enable the ABI to feed more effectively into cross-industry initiatives.”

Joe Montgomery, CEO of ULI Europe, said: “ULI is delighted to join the other leading real-estate bodies at the PIA table and we look forward to helping to  widen understanding of the role that  property and development can play in generating prosperous, vibrant and sustainable cities.”

Marc Mogull, chairman of ULI UK, said, “As a global not-for-profit seeking to improve responsible land use and with a track record of providing a neutral forum to improve dialogue between the real estate fraternity and wider stakeholders including Government, ULI is delighted to join the excellent work the PIA is undertaking.”

John Hale, Manager of Investment Affairs at the ABI, said, “Commercial property is an important market for the insurance and risk management services provided by ABI members. But as institutional investors they are themselves both significant owners of commercial property and a provider of finance to the sector. These make a significant contribution to the asset portfolio which underpins the liabilities that the insurance industry assumes on behalf of its customers.”

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Foreign investors set to become the largest owners of UK property

Foreign investors are on course to overtake UK institutions as the largest owners of commercial property in 2012, according to a new report by the Property Industry Alliance.

The report reveals that foreign investors and UK institutions each held 23 per cent of the UK’s £717bn commercial property market in 2011. However, since 2003 foreign investors have seen their proportion of the market increase 106 per cent to £76bn, while over the same period UK institutions saw a drop of four per cent. If, as expected, this trend continues in 2012 foreign investors will become the largest owners of UK property.

According to a recent Development Securities report, foreign investors already own more than half of the offices in the City of London. Ownership by collective investment schemes, such as managed funds and property unit trusts, has also grown substantially by 103 per cent to 18 per cent of the market, reflecting increased interest in the asset class from smaller institutional and retail investors.

Sir Robert Finch, Chairman of the Property Industry Alliance, said: “This report highlights the rapidly changing nature of commercial property ownership in the UK.  With other recent reports suggesting that over  £50bn of overseas equity has been  targeting UK real estate and  the attraction of London, in particular, as a safe haven in a turbulent world  there can be little doubt that prime  UK property will continue to act as a magnet for overseas investors.”

New research for the City of London and the City Property Association shows that overseas demand is expected to continue for at least the next five years.

The Property Industry Alliance Data Report also reveals:

  • Having accounted for less than a fifth of retail in 1993, the value of out-of-town retail property has now overtaken that in town centres;
  • The average length of lease continues to reduce and in 2011 fell to below five years compared to 8.7 in 1999;
  • Rents, other than central London offices, have been on a downward trend since 2008.

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