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Michael King, head of valuations at GVA Manchester, outlines the state of the region's investment market
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Date MonthDate Month
gva.co.uk
A Bilfinger Real Estatecompany
Property Market Overview
13 October 2014
Michael King FRICS, Senior Director
gva.co.ukShort presentation title here / November 2010
The Macro Picture & Trends
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Values – where are we now?- All property capital values are 29% below 2007 peak but 26% above 2009 low. Rental values are now rising modestly.
Source: IPD, GVA
Place North West – 13 October 2014
Nov-03
May
-04
Nov-04
May
-05
Nov-05
May
-06
Nov-06
May
-07
Nov-07
May
-08
Nov-08
May
-09
Nov-09
May
-10
Nov-10
May
-11
Nov-11
May
-12
Nov-12
May
-13
Nov-13
May
-14
40
60
80
100
120
140
160
180
Capital Values Rental Values
Ind
ex
, No
ve
mb
er
20
13
=1
00
gva.co.ukShort presentation title here / November 2010
Yields & Interest Rates
0
1
2
3
4
5
6
7
8
9
%
IPD Initial Yield 5-yr Swap Rate 5-15 Year Gilt Yields
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
4
5
6
7
8
9
10
11
12
13
14
Yie
ld (%
)
Lowest yield quartile ('prime') UK average Highest yield quartile ('secondary') UK average
200 basis points
499 basis points
Source: IPD, GVA
Prime vs secondary yields- The gap between all property prime and secondary property yields has widened significantly, but is now starting to narrow.
562 basis points
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Development activity - Dramatic fall in new commercial development - worse than in each of the last two recessions. Recent improvement is the start of expected strong upturn in activity.
Source: ONS, GVA
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
-30
-20
-10
0
10
20
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Annu
al C
hang
e (%
)
Total Returns Capital Value Growth
Property returns & capital value growth- Outlook is for a 20% total return and 14% capital value growth in 2014.
Source: IPD, REFL, GVA
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Net Investment by Type of Buyer
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012 2013
£b
n
UK Institutions Quoted Prop Co Private Prop Co Overseas Investors
Private Individuals Corporate Others
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
The Office Sector
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Office Rental Growth
-20
-15
-10
-5
0
5
10
15
20
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018% p
a
All Property Central London Offices NW Offices
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions - Offices
Overview of the UK Commercial Property Investment Market
Chancery Place, ManchesterVendor: Private InvestorPurchaser: NFU MutualPrice: £57,000,000Yield: 5.05% NIYComment:
• 106,000 sq ft • Multi let• 2 vacant floors on
rental guarantees• £537 per sq ft
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions - Offices
Overview of the UK Commercial Property Investment Market
Ship Canal House, Manchester
Vendor: HIMORPurchaser: Ardstone CapitalPrice: £26,000,000Yield: 6.25% NIYComment:
• 72,544 sq ft • Multi let• 2 vacant floors• £358 per sq ft
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
The Retail Sector
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
In-town Retail Rental Growth
-8
-6
-4
-2
0
2
4
6
8
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018% p
a
All Property Unit Shops Shopping Centres NW Unit Shops
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Out-of-town Retail Rental Growth
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% p
a
All Property Retail Warehouse
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions - Retail In Town
Overview of the UK Commercial Property Investment Market
7-9 Piccadilly, ManchesterVendor: W K Nolan AssociatesPurchaser: Henderson Global
InvestorsPrice: £8,200,000Yield: 6.34% NIYComment:
• 22,000 sq ft• Overriding lease to
Superdrug Stores• Expiry 2022
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions - Retail In Town
Overview of the UK Commercial Property Investment Market
17-19 Church Street, Liverpool
Vendor: Friends Life (AXA)Purchaser: Vabeld LimitedPrice: £7,150,000Yield: 5.75% NIYComment:
• Prime retail pitch• Let to Vodaphone• 2019 lease expiry
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions – Foodstore / Retail Warehouse
Overview of the UK Commercial Property Investment Market
Tarvin Road, ChesterVendor: LPAPurchaser:PrivatePrice: £8,500,000Yield: 5.35% NIComment:
• 38,000 sq ft• Overriding lease to
Aldi Stores Limited• 20 year lease with
2.5% pa compounded revenues
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Example Transactions – Foodstore / Retail Warehouse
Overview of the UK Commercial Property Investment Market
Ashfield Road Retail Centre, Burnley
Vendor: The Gregory GroupPurchaser: Private InvestorPrice: £4,750,000Yield: 6.71% NIComment:
• 25,500 sq ft• Let to Homebase
Limited• OM reviews with 15.5
years unexpired
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
The Industrial Sector
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Industrial Rental Growth
-10
-8
-6
-4
-2
0
2
4
6
8
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% p
a
All Property UK Industrial NW Industrial
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Overview of the UK Commercial Property Investment Market
The Qube, LiverpoolVendor: PrivatePurchaser: Best BidsPrice: £36,250,000Yield: 5.5% NIY Gross Comment:
• Prime distribution• 500,000 sq ft• 20 year lease to
B&M
Example Transactions - Industrial
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Overview of the UK Commercial Property Investment Market
Example Transactions - Industrial
Hermes Parcelnet, Omega, WarringtonVendor: Omega, WarringtonPurchaser: LaSalle Investment ManagementPrice: £17,20,000Yield: 6.5% NIYComment:
• Distribution funding• Pre let Hermes Parcelnet
• 20 year lease c. £1.18m pa rent
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
North West v UK Returns
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
UK Sector Returns
-25
-20
-15
-10
-5
0
5
10
15
20
25
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018% p
a
UK Retail UK Offices UK Industrial
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
North West Sector Returns
-25
-20
-15
-10
-5
0
5
10
15
20
25
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018% p
a
NW Retail NW Offices NW Industrial
Place North West – 13 October 2014
gva.co.ukShort presentation title here / November 2010
Conclusions
• Prime yields and values at pre crash level• Offices and industrial outperforming retail• Structural change in the high street but
leisure performing well• Lack of development activity = lack of supply
– potential for rental growth• London & south east overheating• Money not the problem – stock is!!!
Place North West – 13 October 2014
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