Download Alternative investment sectors

Thought
Leadership
Alternative
investment
sectors
Spring 2013
Introduction
The UK’s traditional property investment
sectors have become increasingly polarised
with intense competition for prime assets
with long leases and good covenants.
Sectors outside of the traditional retail, office and
industrial markets provide a valuable source of investment
opportunities with good covenant strengths and long leases
at a time when lease lengths in the mainstream market
are falling, the economy is weak and the outlook remains
uncertain. A lack of comparable rental or performance
data for many of these sectors also means that many
leases benefit from fixed rental or RPI linked increases.
Our report examines the role that the ‘alternative’ sectors
have to play in property investment. We examine those
sectors where we see a strong opportunity for investors –
hotels, leisure, healthcare, student accommodation, data
centres, automotive and waste and energy – and assess
the potential benefits and risks that each present.
Contents
What are the key features of the alternative sectors? ... 04
Factors to consider with alternative sectors ................. 05
Automotive .................................................................. 06
Data centres.................................................................. 08
Energy and waste management ................................ 10
Healthcare..................................................................... 12
Hotels ........................................................................... 14
Leisure .......................................................................... 16
Student accommodation ........................................... 18
Conclusion ................................................................... 20
Drivers of future growth ................................................. 22
Alternative investment sectors
10 Stratton Street London W1J 8JR GVA
I 3
What are the key features
of the alternative sectors?
How have the alternative sectors performed?
Total Return %
0
-2
1 year
4 4I GVA
I GVA
10 10
Stratton
Stratton
Street
Street
London
London
W1J
W1J
8JR8JR
3 years
Alternative sectors
Source: IPD, GVA
Retail
5 years
Office
Industrial
Using the IPD ‘other property’ category as a proxy (although
some of the properties it contains, such as residential and
agricultural
assets, are outside the scope of this report), has
160
shown
an
increased
appetite for alternative investment assets in
140
recent years.
120
The number of properties within this ‘other’ category increased
100
by nearly
200% over the 10 years to Q4 2012 compared with a
80
37% increase
for the office, retail and industrial sectors. Overall,
alternative
sectors
now account for 7.1% of the IPD index in terms of
60
capital value, compared to 2.3% ten years ago, as Figure 2 shows.
40
65%
40%
FT All Share
Figure 2 – Non traditional
sectors
as %RPIof IPD
12%
10%
Policy
5
4
8%
3
6%
2
1
4%
Technology
Economy
0
2%
0%
Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012
Capital value
Properties
Source: IPD
Demographics
Policy
5
4
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
As this trend continues, and these markets increase in size and
20
maturity, the transparency of the alternative markets will also
0
continue
to improve.
Share of IPD Commercial Index
Over the past five-year period (which includes the peak of
the market in 2007) returns from the mainstream sectors were
negative (-0.7% pa at the all property level), whilst the alternative
sectors produced a positive total return of circa 4% pa. Over the
past three years alternative sectors also produced higher returns
than the mainstream sectors.
4
2
There is no comprehensive index showing the overall
performance of alternative assets. This reflects their diverse
nature and differing levels of maturity as well as the lower market
transparency that characterises some alternative asset classes.
We have examined the available data (to the end of
2011), including healthcare, hotels, leisure and student
accommodation. Our analysis suggests that the alterative sectors
have provided stronger total returns than the traditional office,
retail or industrial sectors over periods of one, three and five years.
This is illustrated in Figure 1.
6
Jan-03
But many investors are still relatively unfamiliar with the alternative
sectors and so perceive a greater degree of risk than traditional
commercial property. However, longer leases and fixed uplifts
mean that the reverse is frequently true.
8
Jan-02
At the same time, many good quality assets may be under
priced in a market where overall supply is limited. Prime yields
in these sectors are now at or below 6% with scope for further
compression as these markets develop and mature.
10
Jan-01
The alternative sectors are characterised by a prevalence of
longer leases. This feature, combined with the relative lack of
comparative rental data, means that many leases are index
linked or subject to fixed uplifts. The lease term and strength of the
covenant is highly important in determining the price.
12
Jan-00
By their nature, the alternative sectors have a lower market
transparency than the mainstream market, although there is
considerable variation. For example investors in healthcare have
access to a relatively large amount of market information, whilst
almost no data is readily available in the energy and waste
management sector.
Figure 1 – Historic total returns to end 2011
Index: Jan 2000 = 100
There is a diverse range of alternative
sectors. Some have a large amount
of stock and are currently considered
‘alternative’ simply because they are not in
the traditional mainstream sectors. Some
are still relatively immature sectors that will
grow significantly in size, whilst others are
smaller niche sectors, and will probably
always be considered ‘alternative’.
1
1
1
1
Alternative investment sectors
Factors to consider
with alternative sectors
Demand from investors in the current market is focused on yield
and covenant led deals, ideally with a degree of indexation to
provide regular increases over a long term income stream. The
strength of the covenant is not only determining the price, but
financing and risk evaluation from lenders as well. The maturity
and level of evolution of an alternative sector will determine how
much yields may compress although it could be argued that for
prime assets this is already a narrow band.
To ensure medium to long term viability there are other key
considerations than just the covenant. This section takes a detailed
look at what other considerations are required to ensure that
investment into an alternative sector is viable.
Level of maturity
One of the first considerations when choosing an alternative
property
asset is how mature is that market? Entering a market
12
at an early stage provides greater scope for yield compression,
10
improvements
in capital values and lower cost compared to one
which is more established, larger in size and offering less risk.
8
The quality of the income stream and how sustainable it is ensures
that the occupier has the ability to meet rental commitments over
the lease term. From an investor angle, it is important to have a
clear understanding of the occupier business and its market.
Mitigate risk
Most alternative sector businesses are generally linked with the
property, providing an opportunity to create an Opco and
Propco. This model has been adopted most noticeably with
supermarkets
but also across the leisure, student and healthcare
100
markets. If this is the case, then it is important to establish whether
90
another occupier in the same field can easily move in if occupier
80
‘A’ is unable to fulfil its commitments.
70
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Some50of the alternative markets, particularly energy and waste
40
management,
automotive and data centres remain relatively
30 to outside markets and as such require the help of
opaque
20
specialists
within the sector to act as a bridge to the established
players
10 involved in that industry. However, if the other criteria are
adhered
to, then this can also be turned to an advantage. There
0
are many instances of premiums for established sites in the more
niche sectors given the infrastructure and planning constraints
40%
45%
50%
55%
60%
65%
experienced by new
sites.
Jan-01
6
A lack of comparative evidence means that rents in alternative
4
sectors
can sometimes be linked to performance measures such
as EBITDA.
Whilst widely used across the hotels and healthcare
2
sectors, and often index linked to ensure annual uplifts, this
0
method
requires earnings to rise in conjunction with or ideally
exceed inflation. There have been several high profile examples
-2
of occupiers 1who
have failed to manage
this, particularly
in the
year
3 years
5 years
healthcare and hotels
sectors, and so it is essential that rent is set
Alternative sectors Retail Office Industrial
at the correct level to start with.
Jan-00
Total Return %
Covenant
Ease60of entry
Commencing rent
Exit strategy
Figure 3 – Earnings growth V RPI inflation
The highly specialist nature of some alternative sector businesses
means that there is sometimes very limited flexibility with regards
160
to re-letting, given the smaller pool of demand compared to a
140 such as industrial or retail. Some sectors also provide limited
sector
scope
for alternative uses (including potential planning restrictions)
120
given their specialist nature, although supply constraints in the
100
more
specialist sectors such as data centres and energy and
waste80management can turn this into an opportunity.
160
140
Index: Jan 2000 = 100
For instance, a lease signed in January 2000 with a rent set
at 65% of EBITDA and linked to RPI inflation would be currently
equivalent to 96% of EBITDA. In contrast, a rent set at 40% would
be equivalent to 60% of EBITDA and hence far more sustainable.
120
100
80
60
60 selection
Stock
40
40
As with
all property sectors, the key considerations of location,
competition,
local demographics, supply, demand and a
20
detailed understanding of that sector are key. Just as important is
0
the quality
protected
1 of2building
3
4 and
5 whether
6
7 it8is future
9
10proof
11 and
12
13
14
from obsolescence.
65%
40%
FT All Share
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
0
Jan-00
20
RPI
Series 1
Series 2
Series 4
As highlighted in Figure 3 it is vital that the level of rent is set at a
rate that can remain sustainable. Adopting the FT All Share index
Policy
as a proxy for earnings, the chart
illustrates both the volatility of
earnings but also limited overall5growth since 2000, which is in
4
sharp contrast to RPI growth over the same period.
Series 6
Series 7
Series 8
As well as an understanding of the sector’s dynamics, it is also
important to comprehend how the occupying business operates
as well. This is a key component towards reducing risk but also
Policy
allows the investor to assess the sustainability
of rental income
5
and the covenant strength of existing
or potential occupiers.
4
3
3
2
2
1
0
Series 5
Understand the business model
Source: GVA, Bank of England
Technology
Series 3
1
Economy
Technology
0
Economy
10 Stratton Street London W1J 8JR GVA
I 5
Automotive
The automotive and roadside industry
collectively covers three main property
types – car dealerships, petrol stations
and motorway service areas.
The motor retail industry operates on a franchising model with
vehicle manufacturers (VMs) themselves seldom involved in
the business of car retailing and servicing. Despite this some
manufacturers have utilised their blue-chip covenants through
head-lease and under-lease arrangements to recoup their
considerable capital investment in land and buildings, creating
attractive, high value investment products.
Over the last decade the sector’s property network has
experienced widespread reorganisation and consolidation. The
UK’s car dealership market is undoubtedly the most sophisticated
and mature in Europe, characterised by an extensive network
of modern, expansive and bespoke facilities. Covenants within
the marketplace include the international VMs, but also a broad
spectrum of dealer groups, from regional operators, to major plcs
with turnovers in excess of £1 billion. The sector is characterised
by long leases and increasingly by rents linked to indexation or
minimum gearing mechanisms.
In terms of the motor retail business itself, the number of cars on
the UK’s roads has more than doubled over the last 40 years (now
approximately 31 million). Manufacturers’ product ranges have
increased steadily in response to this extra capacity, with car
showrooms expanding as a consequence. In general this has
involved migration of facilities from town centres to peripheries as
planning has been secured for quasi-retail (sui generis) operations
often by promoting the sector’s high employment characteristics.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Portsmouth
Various including:
Snows Motor Group
Volkswagen Group
12.9
part
£24,750,000
7.03%
Ignis
Watford
Mercedes-Benz Retail Group UK Ltd
16
yes
£8,100,000
5.88%
Ignis
Glasgow
Pendragon
11
yes
£7,075,000
7.00%
ING REIM
Sittingbourne (PFS)
Somerfield Stores Ltd
15
no
£3,110,000
6.85%
Riverside Capital
Lymington (PFS)
Somerfield Stores Ltd
16
no
£3,160,000
6.75%
Mountcharm
6 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. W
hat are the most important property
considerations for an occupier taking new premises?
consumers are turning to more fuel efficient and cost effective
vehicles, increasing demand.
• Location: Determined by factors such as prominence, visibility,
arterial route, retail provision and proximity to other franchises
with a similar target market.
• Finance: In terms of property, banks were quick to retract from
lending in the automotive sector post 2008. Nevertheless,
more attractive loan offers/debt terms should result in greater
demand, and increased property values.
• Lease terms: Many retailers are committed to sale and
leasebacks to provide better quality premises. Given the cost
of acquiring and developing new sites, which has to be done
in accordance with the corporate identity of the manufacturer,
retailers are generally prepared to commit to 20-year-plus
leases. VW Group has recently announced it will not be
taking new leases, but may guarantee a dealer partner’s
occupational lease, serving the same purpose of optimising
investment value.
• Manufacturer: Corporate identity remains a vital consideration.
Dealerships are not built speculatively. Input towards design
and layout is important, particularly “future-proofing” properties
for extension.
• Building: There are no specific ratios for built area to external
space, but most dealerships are land hungry, as external
vehicle display, parking and ability to extend are essential. The
majority of dealerships will be 10,000 – 30,000 sq ft and sites
are typically 1-2.5 acres.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
5. What are the major investor benefits in this sector?
• Modern purpose-built facilities are typically let on long
institutionally acceptable leases, incorporating inflation-linked
or fixed, upward only rent reviews. Exit values are strong when
appraising off five or even 10 year hold strategies.
• A lack of investor understanding of this sector often translates
into lower levels of demand compared with other assets,
resulting in more attractive pricing. The franchise model can
give landlords attractive asset management opportunities.
• Dealers may periodically need to incur significant capital
expenditure in improving or extending a property. Maintaining
the quality of a dealership will be critical for both dealer and
manufacturer, and this can benefit the landlord in terms of
investment appeal and reversionary value.
• There is appreciable value in modern properties let to more
secondary covenants, as ongoing market consolidation
could result in larger, cash rich companies acquiring smaller
businesses and lease liabilities, enhancing investment value.
• EU Block Exemption: The current regulations make special
concessions for the motor industry. From June 2013 these will be
removed. The new regulations are more concerned with supply
chain efficiencies and facilitating competition, but recognise
the value and ownership of a ‘brand’, affording more control to
the vehicle manufacturers.
• Mergers and Acquisitions: Due to the maturity of the UK
network, growth is likely to come from group merger and
acquisition, as opposed to development of competing
dealerships. This should see further incidences of the top 10
groups buying up smaller businesses. Small but sound operators
will become acquisition targets and investors in this area of the
market could stand to benefit from covenant windfalls in the
coming years.
3. How will occupiers’ property needs change?
• Property criteria will continue to be mandated to a large extent
by VMs and will be largely dictated by the success of the brand.
GVA transaction – purchase
Site:
Motor Park, Bilton Way
City: Portsmouth
Lease:12.9 years
Tenant:Various
Purchaser:Ignis
Yield:7.03%
Price:£24.7m
• The largest conurbations to become VM-dominated territories
due to their brand awareness initiatives in the form of “super
showrooms”, and the prohibitive cost of investment for retailers.
4. W
hat are the major challenges and opportunities
facing the sector?
• Economy: Current economic conditions and impact on
disposable income remain a challenge. The performance of
sterling against the euro affects the attractiveness of the UK
automotive market to manufacturers. Rising fuel prices mean
10 Stratton Street London W1J 8JR GVA
I 7
Data centres
The recent march towards a fully digital
society has highlighted the dependency
of businesses upon modern technology.
Changes in working practices and social
use have had a profound effect on
demand for data centre space.
A greater use of the internet to provide services and the increase
in business reliance on technology has led to a significant
increase in the amount of data generated.
A key need is a large energy supply connected to a facility,
ideally at low cost. A data centre campus can require over 100
MW of power, akin to the energy supply for a small city. As a
result property costs are minor compared to occupational costs,
resulting in low risk and strong returns once the energy source is
secured and the necessary fit out complete.
One of the key issues affecting supply is location. With such a
high power requirement, data centres need to be located close
to a suitable power supply. But they also generally need to be
with 40 miles of their client, and the closer the better. Given this,
the availability of suitable sites is a major constraint. At present
the sector is relatively new and supply is lean with the majority of
centres located in or around London.
With only a finite number of sites suitable for this use, and the
heavy infrastructure investment required, demand outweighs
supply; but so far it has been limited to a small section of the
potential market. We think that demand is likely to broaden as use
becomes more widespread.
At present many leading occupier businesses which typically are
large global firms in finance, banking services or insurance prefer
flexible and capex-free space rather than own the facility outright.
Once economic conditions improve, many of these occupiers
are likely to shift back towards owner occupation. This will provide
an opportunity for the disposal of existing facilities, freeing up
space for newer entrants into the market.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Glasgow
Clydesdale Bank
30
yes
£19,000,000
5.54%
L&G
Glasgow
Clydesdale Bank
20
yes
£3,450,000
7.06%
L&G
Manchester
Telecity
13.5
yes
£7,600,000
6.50%
Orchard Street
Birmingham
Talk Talk Group
25
yes
£9,412,000
6.98%
SLI
Andover
Atos Origin
19
yes
£24,725,000
6.72%
Gatehouse Bank
8 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. W
hat are the most important property
considerations for an occupier taking new
premises?
• Location: It is estimated that 75% of the UK data centre
demand is within 80 km of the London.
• Fibre optics: Network providers are keen to enable this resource
if not already in place as they benefit as a result.
• Power supply: The speed in which a suitable power supply can
be established and its connection cost plays a significant role
in determining when a site can become operational.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
required in delivering a powered shell property. Strong covenant
likely from almost all occupiers, including the financial services
or insurance sector. From an occupier perspective the building
itself is a secondary concern.
• Purpose built. Although purpose built data centres are not
an established market and have a very bespoke use, the
shortfall in supply means that there will be a long list of potential
occupiers at the end of the lease, creating a bond like
structure.
• Whichever type of property is chosen, it will be in a strong
location with the necessary security and energy benefits that
will improve residual value due to the finite and limited supply of
these appropriate sites.
• Technological improvements: Over the course of the next
decade we expect improvements that will allow operation
at higher temperatures and servers to run more efficiently,
reducing the need for cooling.
• Economy: Tight budgetary controls favour rental occupation
in third party facilities which can provide growth space. With
stronger economic growth and greater availability of bank
lending, the top end of the market may move towards owner
occupation, opening up the occupational market to a larger
number of firms who are currently priced out.
• Energy costs and policy: Energy costs will remain a constant
issue. Energy costs are likely to increase faster than inflation due
to factors such as sustainability legislation, which will require
offsetting by carbon intensive uses or subsidies for renewable
energy.
3. How will occupiers’ property needs change?
• The technological advances expected over the next decade
could well see the IT infrastructure become compressed and
more efficient. However the increased digitalisation of modern
society will result in a significant net increase in need for data
centre space.
4. W
hat are the major challenges and opportunities
facing the sector?
• Supply: There is unlikely to be any significant increase of supply
in the long term, as there are only a certain number of sites
which meet all the necessary criteria to host a data centre.
Locations that are already established are likely to maintain a
strong foothold in the market.
GVA transaction – purchase
Site:
100 Great Barr Street
City: Birmingham
Lease:
25 years
Tenant:
Talk Talk Group
Purchaser:Standard Life investments
Yield:6.98%
Price:£9.4m
• Energy security: Arranging for the necessary power supply
takes up the majority of time when assembling a potential site.
The scale and necessity of this infrastructure to ensure the right
environment means that investors will continue to look at new
ways of ensuring a continued supply if costs increase or security
of supply is threatened.
5. What are the major investor benefits in this sector?
• Traditional warehouse conversion. Provision of a long lease
(25-30 years) linked to RPI, at higher rents than the background
market, sometimes doubled to reflect the additional investment
DATA CENTRE SALE & LEASEBACK INVESTMENT 100 GREAT BARR ST BIRMINGHAM
10 Stratton Street London W1J 8JR GVA
I 9
Energy and waste management
The key consideration behind the
evolution of the energy and waste
management sector is the government’s
continued commitment to reducing
CO2 emissions to 34% of 1990 levels in
2020 and 80% in 2050. Also by 2020,
the aim is for 40% of energy to come
from low carbon sources, of which 75%
is delivered by renewable energy.
Energy produced can be sold back to the grid via Renewable
Obligation Certificates (ROCs) and the Feed in Tariff (FIT) while
the renewable heat incentive provides reward for alternative
heating methods, in conjunction with reduced operating costs.
If heat is a by-product of energy production, then this can also
be sold, either back to the grid or direct, increasing economic
viability further.
At the other end of the spectrum, landfill tax is set to increase by
£8 per tonne from £64 over the next two years, with incentives
only available for recycling. This is to ensure that by 2015 landfill
waste is only 35% of 1995 levels and recycling rates are increased
to at least 33%.
Opportunities to enter the domestic waste market are few but
commercial and industrial waste is a growing area of opportunity
and, if used as fuel via gasification or pyrolysis, it can provide a
strong hedge against landfill tax when sold off by the tonne.
The availability and quality of supply is highly dependent upon
the necessary infrastructure being in place. Energy and heat
production needs to be linked to the national grid, while access
to fuel must also be secured. There has been a growing trend
from investors looking at former mills and buildings next to weirs to
provide hydro electric power, while sites with waste permits carry a
premium regardless of location.
One of the main complaints against renewable energy uses, solar
power being a good example, is that the initial set up cost for
large scale use makes the payback period too long and costly.
New technology is also expensive but will become cheaper with
increased investment. The newly formed Green Investment Bank is
looking to match investment in the most bankable technologies
to act as a catalyst for improvements and reduced costs.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Hayes
Sita
25
yes
£4,600,000
6.00%
LIM
Blackpool
Sita
25
yes
£1,875,000
7.10%
LIM
10 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. What are the most important property
considerations for an occupier taking new premises?
• Land rental values: Occupiers will pay a premium for an
established site which has the necessary infrastructure and
permits. The availability of sites for this kind of use is unlikely to
increase markedly as they are unpopular in terms of NIMBYism
and strict planning policy.
• Power and fuel supply: It is important to have access to the
necessary fuel type, whether it is gas for a power station, food
waste for an anaerobic digester or wood for a biomass plant.
• Grid connection: It can be costly to set up but it is an
essential requirement. Sites which are already established and
connected will keep their value.
• Size of plot: Government policy is for increased reliance upon
renewable and low carbon energy sources towards 2050. For
logistical reasons, many existing sites may need to increase in
size in order to meet the required capacity asked of them.
• Exit strategy: Is there suitable demand for the land and
property use or can it easily be amended to an alternative use?
Given planning restraints, an established site with a permit can
generate a premium.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
• Legislative: The government’s commitment to the 2050 target is
the keystone to all policy surrounding the sector. Policy is largely
split between targets, such as 30% of all energy to come from
renewable and low carbon sources by 2020, and incentives
such as the Renewable Heat Incentive (RHI) or Feed in Tariff (FIT)
which help investors in the sector get an understanding of the
level of income they can expect to generate.
• Technology: Energy from waste (pyrolysis) is a relatively
immature sector and scientific advances will increase
efficiency and reduce costs. It is currently cheaper to export
waste than to use landfill but this waste is a potential fuel type
that can also be sold on in modules to other users.
are some which are set to increase in use and popularity.
Sheffield City Council is the first in the country to heat all public
buildings in the city from a waste-to-energy plant, and owners in
the private sector are looking to do similar things.
• The municipal waste management market is well established
and a relatively closed shop. Commercial and industrial
waste however is a growth area with the Green Investment
Bank looking to invest in the region of £200 - £300 million into
recycling when fully established.
• A number of occupiers with strong covenants and fuel supply
are looking for sites to exploit potential sale and leaseback
opportunities.
• An area that is facing greater challenges than most is onshore
wind farms. There are currently 333 wind farms in the UK, with
3,500 turbines providing 6,500 megawatts (MW) as of Q1 2012.
The target is for 28,000 MW by 2020. A further 960 turbines are
under construction and 2,100 more are in planning. It would
appear that current government policy is turning against the
rapid expansion of onshore facilities, with offshore (leased from
the Crown) the main beneficiary.
• Both environmental and waste permits as well as planning
consent for new sites can be difficult to obtain.
5. What are the major investor benefits in this sector?
• Energy and waste management is a growing sector, driven
by policy with major potential for long term investment. The
limited supply of non-renewable energy and increased
pressure from government targets will see the property industry’s
relationship with the energy and waste management sector
increase beyond the current trend for simple efficiency savings.
Technological improvements and increased use will see the
cost/benefit of renewable technology improve. Landlords
who can generate their own heat and energy will improve
the performance of their investment and provide additional
income stream from tariffs and subsidies.
GVA transaction – purchase
3. How will occupiers’ property needs change?
• As greater emphasis is placed upon renewable and low carbon
energy resources it is inevitable that occupiers within the sector
will require more space to meet demand.
• Perhaps of greater importance is how occupiers of other
property types will look to involve or change to energy and waste
management use. A good example of this is Sainsbury’s which is
investing in 15-20 anaerobic digesters to provide heat and power
for distribution centres and stores. Owners of large portfolios will
require all new build to be zero carbon by 2019 and having onsite energy provision is one way of achieving this goal.
Site:
Rigby Lane
City: Hayes
Lease:
25 years
Tenant:SITA
Purchaser:La Salle Investment Management
Yield:6.00%
Price:£4.6m
4. W
hat are the major challenges and opportunities
facing the sector?
• The biggest challenge and opportunity facing this particular
sector is energy security. There are some areas of the sector
that property investors are unlikely to get involved with but there
10 Stratton Street London W1J 8JR GVA
I 11
Healthcare
As the population of the UK increases
towards 70 million, the number of elderly
is also set to increase as we live for
longer. Consequently there is set to be
an ever-increasing demand for services
from both a medical treatment and
social care perspective.
A new government-owned company has been established to
streamline the existing NHS freehold Primary Care Trust property
portfolio, valued in the region of £4.6 billion and comprising
several thousand units. One of the main functions will be to
dispose of property surplus to NHS requirements, providing
opportunities for the private medical sector to develop
complimentary or specialist centres.
In the care home market it is estimated that in 2011 there were 3,000
new beds. However over the next five years up to 50,000 existing
beds could be lost as older, smaller, non prime units close down.
Between 2010 and 2035, the total population will grow by 12%,
while the number of people of pensionable age (65 years plus) will
increase by 28%. To put this into context, the number of people
in employment age will increase by just 16%. As a share of total
population this age group will increase from 19.6% to 22.3%.
Average life expectancy has increased by 3% over the last decade.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Edinburgh
Spire Healthcare Ltd
25
yes
£19,725,000
5.75%
LIM
Poole
BMI Healthcare
22
yes
£22,700,000
6.25%
Hendersons
Harrogate
BMI Healthcare
27
yes
£13,560,000
5.75%
Private
Brighton (forward funding)
Spire Healthcare Ltd
25
yes
£24,429,000
6.75%
SWIP
12 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. W
hat are the most important property
considerations for an occupier taking new premises?
4. W
hat are the major challenges and opportunities
facing the sector?
• Location: A broad range of factors involved largely based upon
sub sector and type of healthcare provision. For long term care,
focus tends to be on demographics and incomes, in particular
equity wealth and high house prices. For treatment, emphasis
moves towards competition and existing provision, particularly
with growing focus on support work for NHS. The number of
healthcare professionals and professionals likely to have private
health insurance is also important.
• Funding: This covers the changing balance between NHS and
social care funding, insurance products and private means. In
2012, 41% of all care fees were privately funded.
• Quality of building: Depending on purpose, how does
property comply with legislation and market expectations?
Hospitals and care homes need to be clean and functional.
• Adaptability: Are premises flexible to change with market
demands?
• Property size: Ability to change with innovations and medical
advances.
• Alternative uses: Exit strategy can be very limited.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
• Legislation: With the ongoing reforms to the NHS there are
many different policy areas which could have a major impact.
With regards to treatment the newest hospitals have 50% fewer
bed numbers than those built in the 70s and 80s. The number
of beds in the NHS will continue to decline, as will the number of
hospitals, as budgets are consolidated under the programme
of reform.
• Finance: More innovative ways of financing new development
will be required. The healthcare REIT PHP this year raised £75m
through a retail bond. Similar measures will be required to
support primary debt as lending conditions remain tight.
• Adaptability: Care needs are likely to change over the next
decade. Property will need to change to reflect that.
5. What are the major investor benefits in this sector?
• Private hospital market (treatment): There are easily
identifiable benchmarks if operational use is understood. The
ongoing reforms to the NHS mean that this specialist sector
should play a greater role in supporting the NHS
• Long term (elderly) and specialist care (disability, terminal
illness etc): This is more reliant on economic performance
as household wealth still plays a key role. However funding
reform is required to address demographic issues which could
see a move towards government subsidised funding being
introduced.
• Demographics: The population of the UK is set to increase
by 0.8% per annum between 2010 and 2020, faster than any
other decade in recent history, with the population set to reach
70 million in 2027. The increase in population, in particular the
number of elderly, will have a significant impact on demand for
the healthcare sector.
GVA transaction – forward funding
• Medical advances: New treatments will continue to emerge.
Emphasis is likely to focus on improving longer term care rather
than establishing cures for life threatening illnesses.
• Economy: While many of the changes being made to the NHS
are based on political reform, the underlying reason for this
comes down to funding. The issue of funding for long term care
needs to be addressed fully within the next decade due to the
pressures of supporting an expanding elderly population. If the
state eventually plays a role in funding or guaranteeing these
costs, the beneficiaries will be occupier’s covenant strength.
3. How will occupiers’ property needs change?
Site: The Montefiore
City: Brighton
Lease: 25 years
Tenant: Spire
Purchaser: SWIP
Yield: 6.75%
Price: £24.4m
• With greater clinical emphasis on reducing the risk of
infection and accommodating patients with intensive nursing
requirements, accommodation is likely to focus on single rooms
rather than wards.
• Hospitals will have fewer overnight beds as well, pushing
emphasis towards treatment rather than care.
10 Stratton Street London W1J 8JR GVA
I 13
Hotels
In comparison to some of the other
alternative sectors, the hotel sector
is considered to be at a reasonably
mature stage after a decade of
significant expansion from the turn of the
century.
This strategy saw a real drive to major full service hotel companies
becoming ‘asset light’/‘asset right’ through the divestment of
their property interests to investors but retention of, primarily,
management contracts to continue operating the hotels.
The management contract approach also played a strong role
in driving the growth in the full service hotel sector by supporting
the creation of new hotels by developers. The limited service
sector, dominated by Premier Inn and Travelodge, also expanded
extensively during the decade, but with the aforementioned
companies focussing on the leasing model which better suited
the requirements of institutional investors.
In recent years, the UK hotel market has seen differing fortunes
with London operational performance strong relative to the
majority of regional markets. However, where the correct trading
and supply fundamentals are in place, across the country
opportunities exist to acquire hotels at prices that are historically
low and, in five to ten years time, are likely to have been
considered cheap purchases.
The current debt challenges faced by the sector are well
documented, but we are at a tipping point whereby there is
limited benefit in hotels being held if capital investment cannot
take place to maintain a competitive operational position.
Furthermore, in recent years there has been a growth in niche
hotel operators able to operationally manage hotels on behalf
of ‘non-hotelier’ owners. The niche operators are also able to link
up with global hotel brands to access strong booking systems.
However, the challenge for investors is to ensure that they
understand how to fully ‘asset manage’ a hotel with an operator in
order to maximise future values.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Portfolio: Exeter, Lancaster, Poole
Premier Inn
25
yes
£21,200,000
5.31%
SLI
Solihull
Premier Inn
25
yes
£8,335,000
5.50%
Royal London
Balham
Travelodge
25
yes
£6,900,000
6.00%
CBREGI
St Helens (forward funding)
Travelodge
30
yes
£2,790,000
6.50%
Private
Newcastle
MWB Malmaison Holdings Ltd
35
yes
£14,900,000
6.72%
L&G
14 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. W
hat are the most important property
considerations?
• Location: London has outperformed the rest of the country,
while other areas that have seen strong performance in 2012
have been Aberdeen (oil industry), Belfast (Titanic exhibition)
and markets such as Bath and Gatwick Airport. Opportunities
exist outside of London for those who understand investing in the
hotel sector.
• Business: Given the heavy reliance on the strength of the
operator is there a business in place that can be supported or
are changes needed?
• The emerging BRIC countries will provide a greater share of
business and tourism revenues as their economies continue to
grow, although current visa and immigration requirements are
withholding some potential demand from these markets.
5. What are the major investor benefits in this sector?
• Even if values fall, the hotel sector is able to provide strong
returns if there is a good operator, good asset management
and strong underlying business. The sector is just as reliant upon
the occupier business as the property itself.
• Property type: Ensuring that the hotel is being operated in a way
that is appropriate for its style and location.
• Commercial structure: Occupation can be on a lease or
management contract basis. This affects the overall return and
cost of running the property.
• Competition: Rather than being solely reliant upon location,
the standard of competition also has a significant bearing. A
five star hotel could operate in close proximity to a mid or lower
standard hotel.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
• Economic: This is one of the main areas which will affect the
sector, particularly in relation to staff and occupier costs.
Inflation and the possible introduction of a living wage have
the potential to erode profitability. At a more macro level, the
Eurozone crisis and the sterling exchange rate are on-going
considerations.
• Demographics: A significant increase in population in the
UK should logically create greater demand from domestic
tourism and business use, while overseas visitors and freedom of
movement also remain key.
• Legislation: While not as adversely affected as the broader
leisure sector, the legislative outlook is always evolving. Major
issues such as the Disability Discrimination Act and the smoking
ban have been adopted as and when required. An area of
more concern in the future may be visa requirements from
emerging markets such as China and the other high growth
nations.
3. How will occupiers’ property needs change?
GVA transaction – purchase
Site: Portfolio
City:
Exeter, Lancaster, Poole
Lease: 25 years
Tenant: Premier Inn
Purchaser: Standard Life
Yield: 5.31%
Price: £21.2m
• It is unlikely that there will be any significant changes to
occupiers property needs in the next five to ten years. Any
change is more likely to be driven by brand style of the
respective hotel chains.
4. W
hat are the major challenges and opportunities
facing the sector?
• Most of the major challenges and opportunities the hotel
sector faces are economics based; from access to funding for
investors, occupiers and developers, to corporate and individual
guests cutting down on stays due to cost saving measures.
10 Stratton Street London W1J 8JR GVA
I
15
Leisure
The leisure sector is arguably the most
transparent and evolved alternative
sector, with IPD performance data and
comprehensive deals databases, as
well as being the most similar to more
traditional commercial uses such as
retail. Despite this, the reliance upon
earnings to measure value puts greater
emphasis on the occupational business
and covenant strength.
Leisure is also one of the most diverse sectors by type of use.
The criteria for choosing a leisure and fitness centre will be very
different for a cinema, a casino, or a chain of pubs.
Planning policy restrictions have seen the majority of new leisure
development concentrated in out of town retail park locations,
where land prices are lower and larger clusters of units can be
accommodated. However, size requirements within the sector
vary greatly, whether for a town centre public house or a prime
health and fitness centre requiring 120,000 sq ft plus 10 acres of
outside space for pitches and tennis courts.
There has been over £1.75 billion in investment transactions in the
leisure sector in 2012 (according to Property Data) at an average
yield of 6.16%. Several players such as Enterprise Inns have utilised
extensive sale and leaseback deals as a way of leveraging
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Bury St Edmunds
Various including:
Cineworld
KFC
Frankie & Benny’s
17.6
yes
£9,825,000
6.17%
LIM
York
Various including:
Vue
Chiquito
Frankie & Benny’s
10
yes
£15,720,000
6.90%
USS
Telford (forward funding)
Various including:
Cineworld
Premier Inn
Prezzo
Pizza Express
25
part
£22,000,000
7.00%
PRUPIM
Newcastle
Various including:
Empire cinema
Aspinalls casino
Tiger Tiger
various
part
£60,000,000
6.25%
Crown Estate
Dagenham
Various including:
Vue
Pizza Hut
Chiquitos
McDonalds
12
yes
£18,500,000
9.15%
Under offer
16 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
finance in difficult funding conditions. Whilst demand and
performance within the sector remains strong, some difficulties
remain, as exemplified by the difficulties experienced last year by
the Fitness First health centre chain.
1. W
hat are the most important property
considerations for an occupier taking new premises?
•Location: Position is key based on a broad range of factors
including demographics, visibility, prominence and access.
• Affordability: Levels of wealth in the area and the affordability
of the leisure provision will determine whether a site is more
suited to a top end or budget operator.
• Values: We think that market values are currently near the
bottom of the cycle. Due to the way leisure property is valued,
a small fall in turnover can lead to a much greater fall in value.
Consequently there are now significant opportunities for uplifts
in value, determined on viability and value.
5. What are the major investor benefits in this sector?
• Real estate investment in the leisure sector has traditionally
focused on retail and leisure parks, based on quality assetbacked deals with a strong covenant. As a whole, the sector is
covenant-led and is more mature and transparent than many
of the other emerging, alternative sectors.
•Competition: Budget operators (health clubs for instance) sit
happily alongside top end rivals as their market, catchment
area and property requirements differ. Mid level operators have
suffered as a result, with falling revenues and high rents.
• Finance: Access to lending can be particularly difficult for all
operators at present within the sector, particularly those at the
budget end of their respective markets. At the other end of the
spectrum, there always remains the risk that those with relatively
easy access to funds will expand too quickly.
• Total premises costs: With rental commitments often linked
to an agreed level of turnover plus inflation linked uplifts, the
overall cost of occupation may increase disproportionately if
turnover levels fail to increase in line with RPI.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
• Legislation: The leisure sector has been affected by a mass
of legislation in the recent past (smoking ban, Disability
Discrimination Act, beer tie, gaming laws, VAT rise) and remains
exposed to further interventions.
• Demographics: The population is set to grow by 0.8% pa from
2010 – 2020, with the largest increase amongst the over 65s.
This will result in increased demand from the “grey pound” in
particular. Lifestyle trends among the young and professionals
mean that leisure continues to play an integral role.
• Economy: Since the turn of the century many working
households have become cash rich but time poor. However,
wage growth has failed to keep up with the increased cost
of living since 2008 and its likely levels of disposable income
will remain lower in the short term as the pace of economic
recovery remains subdued.
3. How will occupiers’ property needs change?
• The leisure centre has had to reinvent itself to match changing
consumer demand over the past decade and will continue to
need to do so in the future. Trends often match those that are
happening in the US and western European markets.
GVA transaction – purchase
Site: Portfolio
City: Manchester and Neath
Lease: 25 years
Tenant: Virgin
Purchaser: Threadneedle
Yield: 6.60%
Price: £8.0m
4. W
hat are the major challenges and opportunities
facing the sector?
• Finance: The financial crisis has had a particularly strong
impact on funding, which has had a knock-on effect on
development and new supply.
10 Stratton Street London W1J 8JR GVA
I 17
Student accommodation
There has been strong investor demand
in recent years in this sector, as it has
seen consistent rental growth and
is broadly considered to be under
supplied. The number of students in
higher education in the UK is at a record
high of 2.5 million as of 2011.
An ever growing number of these are from overseas, particularly
outside of the EU. Countries with rapidly expanding middle classes
such as China, India and Nigeria are sending their children to
leading global universities, a good proportion of which are in the
UK (three in the top ten).
In the first eight months of 2012 planning applications were
submitted for 27,000 new student beds. In London, there are
currently 8,300 beds under construction. The private sector market
share has increased from 3.8% of all accommodation in 2008/9
to 4.7% in 2010/11 and will continue to grow at the expense of
university halls. The traditional private rented sector has the largest
share of students at 29.4% of the market.
It is the overseas market in particular that is most reliant on
purpose-built student accommodation (PBSA), accounting for
over 45% of the occupancy for the Unite portfolio in London
alone. The increase in tuition fees for the 2012/13 academic year
resulted in a 7.7% fall in applicants for that year. This was partly
manipulated by a 50% fall in deferrals the year before as many
first year students sought to beat the fee hike.
Key deals
Town
Tenant
Lease Term
Indexation
Lot size
Yield
Purchaser
Southampton (forward funding)
University of Southampton
30
yes
£93,200,000
4.15%
L&G
Edinburgh (forward funding)
Napier Unviersity
22
yes
£41,830,000
6.46%
SLI
London, Finsbury Park (forward funding)
University of Arts London
25
yes
£57,000,000
unknown
L&G
Newcastle
Unite Portfolio
17 & 20
yes
£23,132,000
5.65%
LIM
London, Clapham
Imperial University
45
yes
£116,000,000
4.50%
L&G
18 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
1. W
hat are the most important property
considerations for an occupier taking new premises?
• Location: Proximity to transport facilities, nightlife and the
university.
• Supply and demand: The number of students and universities
versus the number of beds.
• University ranking: The new fee structure has created a flight to
quality.
• Running costs: Property management costs in particular vary
considerably across the sector.
• Size: How big is the scheme and does it fit with the institution
and local area? A large number of beds for a small university
in a small town may struggle to maintain the necessary
occupancy rate.
2. W
hat major changes (legislative, economic,
demographic or technological) lie ahead for the
occupational market?
• Tuition fees: This year saw the first intake of students paying up
to £9,000 per annum, resulting in a 7.7% drop in applicants.
This was to be expected as those who had the option to avoid
the extra fee burden took it. It will take a few years to establish
the wider implications the new fee structure has on demand for
higher education.
• Planning: Some central London boroughs have witnessed a
high degree of supply, resulting in a preference by planners for
affordable housing and prohibitive Section 106 agreements.
Future development may also be hampered by CIL payments
which may lead to more upward rental pressure as central
London stock will become more limited.
• Supply: Some local markets are close to saturation already.
City centres with a high concentration of high density residential
stock provide a cheap private rented alternative, whilst
many stalled residential schemes were converted to student
accommodation between 2008 - 2010.
5. What are the major investor benefits in this sector?
• Student accommodation provides a defensive stock let to a
university on long index-linked leases, creating annuity style
income.
• Rents are often underwritten by multiple, often middle class
families.
• During an economic downturn, more people opt to enter
higher education, including mature students looking to retrain
and postgraduate options.
• Immigration policy: Overseas students, particularly from
outside the EU, are a key component for university funding,
providing over 30% of fee income despite accounting for just
12% of the student population. Leading UK institutions compete
on a global scale and could be adversely affected if policy
were to hinder movement.
3. How will occupiers’ property needs change?
• It is estimated that 4.8% of students reside in PBSA, compared
to 18% in university halls. While a small market share, the
number of students in PBSA has increased 42% since 2009.
• As government funding is reduced for universities we can
expect to see asset management focus on core academic
use over the next decade, increasing the likelihood of oven
ready sites or development opportunities in established
markets.
• GVA estimates that there are over 300,000 beds in university
halls, much of which will need upgrading in time.
4. W
hat are the major challenges and opportunities
facing the sector?
GVA transaction – purchase
Site: Unite Portfolio
City: Newcastle
Lease: 17 years & 20 years
Tenant: Unite
Purchaser: La Salle Investment Management
Yield: 5.65%
Price: £23.1m
• Finance: Investors were previously able to secure 80% LTV on
primary lending, whereas now achieving 55-60% is considered
good. Consequently there is a greater need for mezzanine
finance, particularly if the site is not considered to be either
prime or supported by a strong covenant.
• Partnerships: Speculative development has dried up. In order
to gain forward funding future income stream needs to be
secured by way of a nomination agreement or lease with
university partner, preferably with a long lease and fixed uplifts.
10 Stratton Street London W1J 8JR GVA
I 19
Conclusion
As policy, technology and economies
advance so does the use of property.
Having enjoyed a period of record
growth, the traditional commercial
property sectors are undergoing a
period of correction that has seen
markets fracture between prime and
secondary, London and non London,
resulting in negative impacts on rental
values, capital growth and total returns.
Alternative sectors do not offer a guarantee of growth but, as the
name suggests, they provide an opportunity to diversify into a
different type of property which may be better placed to deliver
stronger returns and income growth than traditional commercial
property.
One of the biggest risks is the element of the unknown. Limited
transparency and ease of access may be off-putting for some
investors, but with the right support and knowledge these issues
can be overcome. With assistance from the necessary industry
expertise, the rewards in these emerging markets can be reaped.
Whilst the sectors themselves may be new, many of the
considerations remain the same as they are for all commercial
property. Of most importance are the quality of the product and
the strength of the occupying business. These are key to ensuring
that the prospects for growth and the sustainability of the income
stream remain high.
Potential investors need to gain a clear understanding of the
markets, the competition and the issues they each face. Knowing
as best one can what factors are likely to shape a particular
market can influence and determine the necessary strategy that
enables investors to mitigate risk and gain the most benefit as
and when these issues occur.
The traditional commercial property market is currently providing
limited options for investors seeking long term annuity style
products with fixed increases and secure tenants. The specialist
nature of many alternatives means that quite often the occupier
business is reliant upon the property itself, reducing the chance of
breaks or re-lets.
The topic of rent affordability is one potential area for concern.
Adopting 65% of EBITDA (often as a means to maximise capital
receipts in a sale and leaseback transaction) coupled with indexlinked leases has been a contributing factor in the demise of
some major corporate occupiers. Index linked rents are one of
the defining factors which make alternatives an attractive option,
but commencing rents of 40% to 50% of EBITDA are far more
sustainable.
20 I GVA 10 Stratton Street London W1J 8JR
Alternative investment sectors
10 Stratton Street London W1J 8JR GVA
I 21
Index: Jan 2000
80
30
120 60
60
20
100 40
10
80 20
0
65%
20
40%
FT All Share
65%
Jan-13
Jan-13
Jan-11
Jan-11
60%
Jan-12
Jan-12
55%
Jan-10
Jan-10
Jan-08
Jan-08
Jan-09
Jan-09
50%
Jan-07
Jan-07
45%
Jan-06
Jan-06
40%
Jan-05
Jan-05
Jan-03
Jan-03
Jan-04
Jan-04
Jan-01
Jan-01
40
20
Jan-02
Jan-02
0
40
Jan-00
Jan-00
60
RPI
0
1
2
Series 1
3
Series 2
4
5
6
Series 3
7
8
Series 4
9
Series 5
10
11
Series 6
12
13
Series 7
14
Series 8
Jan-13
0
1
2
3
4
5
6
7
8
9
Drivers of future growth
Series 1
160
Series 2
Series 3
Series 4
Sector
120
10
11
Series 6
12
13
Series 7
14
Series 8
Policy
5
Drivers of growth
4
3
100
Automotive
80
60
Series 5
Policy
5
140
Technology
2
The main factors affecting
growth in the automotive
1
sector are economic and policy driven. Technology will
Technology
Economy
play a small part as 0the industry moves
more towards
electric and hybrid vehicles, while demographics play a
role in influencing the nature and level of demand.
Economy
0
3
2
20
1
0 Technology
1
2
Series 1
0
3
Series 2
4
5
6
4
3
Policy
2
5
1
4
40
Jan-13
Jan-12
50
140 80
40
7
8
9
Series 3 Series 4 Series 5
Demographics
10
Economy
11
12
13
Series 6
Series 7
14
Series 8
Demographics
Demographics
Data centres
Technology
Technology
Policy
5
4
Policy
5
3
4
2
3
1
Policy
2
5
0
1
4
Economy
Economy
0
3
Policy
Growth in the data centre
market will be principally
5
4
determined by technological
factors. Economic factors
will determine how widespread
demand becomes,
3
2
whilst energy costs and
the role of sustainability
1
legislation are also considerations.
Technology
Economy
0
2
1
Technology
0
Demographics
Economy
Demographics
Demographics
Energy and waste management
Government policy in terms of emissions targets
will have the greatest influence on the energy and
waste management sector, closely followed by
improvements in technology. Economic strength will
also play a role as costs remain high at present, limiting
the level of take up.
Demographics
Policy
5
4
3
2
1
Technology
0
Economy
Demographics
Healthcare
Policy
5
4
3
2
1
Technology
0
Demographics
Economy
Demographics will have
the largest impact on growth
Policy
5
within the healthcare sector,
although government
4
policy and the economy will also play a role in
3
determining the level of
demand across the different
2
aspects of the sector. Technological advances,
1
particularly
in medicine and treatment, may reduce
Technology
Economy
0
the need for bed spaces in some instances although
this will not be universal.
Demographics
22 I GVA 10 Stratton Street London W1J 8JR
Policy
Policy
Retail
Industrial
40%
45%
Demographics
160
Jan-13
Jan-12
Jan-11
Jan-10
Jan-07
Jan-08
Jan-09
60%
65%
160
120
120
Policy
5
4
80
3
60
2
65%
FT All Share
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-07
40%
Jan-08
Economy
Jan-05
Jan-04
Jan-00
0
Jan-03
0
Jan-02
1
20 Technology
Jan-01
40
Jan-06
Index: Jan 2000 = 100
55%
Drivers
of growth
140
100
Hotels
RPI
Policy
The
strength of the economy
has the greatest
5
100
impact on the hotel sector,
closely followed by
4
80
demographics, with tourism
and movement of
3
60
2
people
key. With businesses
looking to keep costs
40
1
down
for the foreseeable
future, technological
Technology
20
Economy may reduce
0
alternatives such as video-conferencing
0
demand
slightly but this is marginal in terms of overall
1
2
3
4
5
6
7
8
9
10
11
12
13
14
demand.
Series 1
Series 2
Demographics
Policy
5
13
2
0
Technology
Economy
1
Technology
Series 4
Series 5
Series 6
Series 7
Series 8
Policy
4
2
5
Series 3
Demographics
4
Policy
35
Leisure
Score: 0 = none, 5 = high
50%
Demographics
Sector
140
4
Jan-05
5 years
Office
Jan-06
3 years
Alternative sectors
Jan-04
-2
Economy
0
Jan-03
0
1 year
Technology
10
Jan-02
Economy
0
Alternative investment sectors
1
20
Jan-01
Technology
2
30
1
0
3
40
2
2
4
50
3
4
5
60
4
Jan-00
Total Return %
5
6
Economy
0
3
By and large, the leisure
5 market is influenced the
most by the strength of4 the economy, be it access to
3
funding for future development
or disposable income
2
of customers. Legislation
will continue to play a key
1
role in shaping future growth
of occupiers’ businesses
Technology
Economy
while demographics, in0 particular population
growth,
will help to boost demand.
Demographics
2
Demographics
1
0
Student
accomodation
Leisure
Hotels
Policy
Healthcare
Student
Demographics
Automotive
EconomyPolicyDemographics
5
Energy
Data Centres
Technology
4
3 Policy
5
2
4
1
Technology
3
02
Student accommodation is driven primarily by
legislation, whether it is tuition fees, migration targets
or planning policy. Demographics also play a part,
particularly the numberPolicy
of 18 - 20 year olds, while
5
the strength of the economy
also determines rent
4
affordability and access
to
finance
for development.
3
Economy
2
1
Technology
0
1
Economy
Technology
Economy
0
Demographics
Demographics
Demographics
ta Centres
10 Stratton Street London W1J 8JR GVA
I 23
London West End
10 Stratton Street
London W1J 8JR
London City
80 Cheapside
London EC2V 6EE
Belfast
Rose Building Third Floor
16 Howard Street
Belfast BT1 6PA
Birmingham
3 Brindleyplace
Birmingham B1 2JB
Bristol
St Catherine’s Court
Berkeley Place
Bristol BS8 1BQ
Cardiff
One Kingsway
Cardiff CF10 3AN
Edinburgh
Quayside House
127 Fountainbridge
Edinburgh EH3 9QG
Glasgow
206 St Vincent Street
Glasgow G2 5SG
Leeds
City Point First Floor
29 King Street
Leeds LS1 2HL
Liverpool
Exchange Station
Tithebarn Street
Liverpool L2 2QP
Manchester
81 Fountain Street
Manchester M2 2EE
Newcastle
Central Square
Forth Street
Newcastle upon Tyne NE1 3PJ
Published by GVA
10 Stratton Street, London W1J 8JR
©2013 Copyright GVA
GVA is the trading name of GVA Grimley
Limited and is a principal shareholder of
GVA Worldwide, an independent partnership
of property advisers operating globally
gvaworldwide.com
For further information
please contact:
Investment
Mark Beaumont
Head of Investment
[email protected]
020 7911 2183
Neil Dovey
Senior Director
[email protected]
020 7911 2168
Research
Daniel Francis
Head of Research
[email protected]
020 7911 2363
Automotive
Paul Taylor
Senior Director
[email protected]
020 7911 8455
Data Centres
Chris Jones
Senior Director
[email protected]
020 7911 2525
Energy & Waste Management
Chris Lockwood
Director
[email protected]
020 7911 2884
Healthcare
Adam Burchell
Director
[email protected]
0121 609 8420
Hotels
James Williamson
Director
[email protected]
020 7911 2109
Leisure
Gavin Brent
Director
[email protected]
020 7911 2228
Student Accommodation
Roger Lown
Senior Director
[email protected]
020 7911 2862
08449 02 03 04
gva.co.uk
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