Download The UK real estate market

The Barclays Chart - February 2015
The UK real estate market:
Where next?
The UK commercial real estate market has experienced high transaction volumes over the last two years. As a result, the
market has delivered two years of double-digit total returns. Given these record levels of activity and returns, the pertinent
questions now are whether this remains a suitable time to invest into the UK market, and if so, what strategy and asset
types to pursue?
Strong market momentum
Facts and figures
2014 was a particularly strong year for UK
commercial real estate, with total returns
to property averaging between 18-20%,
supported by investment transactions of circa
£40bn to September 2014 (£53bn annualised).
This followed another strong performance in
2013 with total returns of 10.9%, supported
by £53.3bn of investment transactions. These
transaction volumes are the highest seen since
immediately before the market peak (2006
£62bn, 2007 £55bn) and compare to the low
levels of activity - circa £25bn - observed in
2008 and 2009.
In 2014, overseas investors were the largest
single investor type in the UK, comprising 39%
of transaction volume. The next largest class
of investors was UK institutions, responsible
for 30% of total investment in the UK. This
highlights the continued high demand for
good quality assets in the UK, which are
seen both as a yield play in a low interest rate
environment, as well as a “safe haven” store of
value for both UK and foreign investors.
• 2014 was a particularly strong
year for UK commercial real
estate, with total returns to
property averaging between
18-20%, supported by
investment transactions of circa
£40bn to September 2014
(£53bn
annualised)
Transaction Value (£m)
£70,000
£60,000
£50,000
• This followed another strong
performance in 2013 with total
returns of 10.9%,
supported by
£40,000
£30,000
£20,000
£10,000
£0
2000
2001
Central London Office
2002
2003
Rest of UK Office
2004
2005
Shopping Centre
2006
2007
Retail Warehouse
2008
2009
2010
Shop/Supermarket
2011
Industrial
2012
Leisure
2013
2014
Other
Source: The UK Property Investors Bulletin, January 2015 Edition
Opportunities in 2015
The general view for the whole UK market is
that 2015 will see a continuation of the recent
upward trends in both investment activity and
returns. Whilst there is an apparent consensus
that the market will enjoy double-digit total
returns, during the course of this year, we have
noted a wide spread in forecast returns, with,
for example, CBRE forecasting total returns
of 13%, whilst Aviva Investors is currently
predicting a total return of 17%.
The IPD UK consensus forecast, which pulls
together the research of 30 organisations,
has a mean forecast for UK All Property total
return of 10.8%. However, it is the four-year
outlook to 2018 that is of most interest. For
2016 onwards, the levels of capital growth
are forecast to reduce dramatically, with total
returns expected to be driven primarily by
income returns. The consensus forecast for
2016 shows capital growth of only 1.1%, with
total returns at 6.6%. 2017 is forecast to report
capital growth of just 0.1% and total returns
of 5.3%, whilst 2018 is forecast to see capital
values fall by 0.3% and a total return of 5%.
Total annualised returns from 2014 to 2018 are
expected to be 9.2%, a figure skewed by 2014
returns. Taking 2014 out of these calculations
results in anticipated annualised returns of
circa 6.9% per annum for the years 2015-18.
This suggests that the market will reach its
peak towards the end of this year or early
2016. However, given strong recent returns,
the total returns offered by the UK real estate
market still makes this asset class look
relatively attractive to others.
Past performance is no guarantee of future returns. For more information, click here.
Click here to download the full report.
Item Ref: IBIM3838 February 2015
£53.3bn
of investment
transactions
• For 2015, CBRE is forecasting
total returns of 13%, whilst
Aviva Investors is currently
predicting a total
return of 17%
13%
CBRE
17
%
Aviva
• The IPD UK consensus forecast
anticipates annualised returns
of circa 6.9% per annum for the
years 2015-18