UK PROPERTY INVESTMENT BULLETIN Q3 2016

Dr K A Sieracki
KASPAR Associates Page 1
UK PROPERTY INVESTMENT BULLETIN Q3 2016
Nothing lasts forever….
Q3 2016 Summary
 Q3 2016 investment activity at £8.9bn was 25% down from Q2 2016 and 58%
down from the same time last year. As the year has progressed, transaction
activity has waned.
 Overseas investors have taken a larger purchasing share of the UK investment
market at 58% whereas the UK institutions’ share decreased to 14%.
 UK institutions were the largest sellers at 31%, followed by UK unlisted property
companies at 15%.
 UK institutions had increased their selling share in Q3 2016.
 UK institutions were the largest net disinvestors for the second consecutive
quarter.
 This is the fifth consecutive quarter of UK institutions net disinvestment which
was the first time of such continuity since Q3 2009 which saw ten consecutive
quarters of UK institutions net disinvestment.
 In Q3 2016 the overseas were the sole net investors, the first time since Q2 2013
when the overseas were in the same position.
 The largest overseas investor was the US at £1.56bn closely followed by the Far
East at £1.54bn.
 The Far East were the largest net overseas investor.
 Initial yields for the main sectors continued to be below their long term averages.
 For the main sectors, all yields moved out except for offices.
 The overall initial yield was 6.26%, up 24bps from Q2 2016.
 In the regions, only the North West saw compression.
 Both Central London and Outer London saw outward movement of 45bps and
44bps respectively to 4.21% and 5.29%.
 Offices continued to be the favourite sector at 30%, followed by Other at 23%.
 Central London remained the preferred location at 33.4%, followed by UK wide
at 22%.
 Overseas investors remained fans of Central and Outer London.
 UK institutions, UK unlisted property companies and UK private investors were
still selling Central London.

Dr K A Sieracki
Q3 2016
 Q3 2016 UK investment activity at £8.9bn was the lowest since Q3 2011.
 It was 25% lower than Q2 2016 and 58% lower than the same time last year.
 Overseas investors increased their domination of purchasing activity at 57%
(£5.1bn) (Q2 2016 was 45%), followed by UK institutions at 15% (£1.3bn).
These two groups have been the largest investors since Q3 2009 as seen in the
chart below.
 The UK institutions’ share decreased further in Q3 at 15% from the 17% share
seen in Q2 2016.
Source: Property Archive
 The largest sellers for Q3 2016 were UK institutions at £2.8bn (31%) followed by
overseas at £1.6bn (18%) and UK unlisted property companies at £1.3bn (15%) as
shown in the graph below.
 This was increased selling share by the UK institutions from the Q2 2016 level of
27%.

Dr K A Sieracki
 Overseas investors were the only net investor in Q3 2016 at £3.5bn, making it the
30th
consecutive quarter of overseas net investment since Q4 2008 as seen in the
chart below.
 UK institutions continued to be the largest net disinvestors at minus £1.5bn for the
second consecutive quarter, followed by UK unlisted property companies at
minus £0.9bn. This was the 14th
consecutive quarter of net disinvestment for UK
unlisted property companies.
 The Far East was the largest overseas investor at 34.1% (£1.74bn), followed by
US at 32.7% (£1.66bn).

Dr K A Sieracki
 The biggest overseas seller continued to be the US at 33% (£0.5bn) for the 7th
consecutive quarter, followed by the Scandinavians at 23% (£0.3bn) as illustrated in
the graph below.
 The largest net overseas investor in Q3 2016 continued to be the Far East at
£1.7bn for the seventh consecutive quarter as seen in the graph below. The US
followed at £1.14bn, the first time it has been a net investor since Q4 2015.
 For the first three quarters of 2016, the Far East has been the largest net investor
at £4.7bn, followed by Others at £1.3bn and the Middle East at £1.2bn.
 In Q3 2016 the largest net overseas disinvestor was Europe at minus £0.3bn.
 For the first three quarters of 2016, the Irish have been the largest net disinvestors
at minus £0.9bn followed by Europe at minus £0.3bn.
 Total Irish net disinvestment has been minus £16.7bn since Q2 2009 making it 30
quarters of continuous net disinvestment.

Dr K A Sieracki
 The average initial yield saw outward movement of 24bps to 6.26% from 6.02%
in Q2 2016 as shown in the chart below. All initial yields for the main sectors
moved out except for offices which slightly compressed by 7bps to 5.58%.
 The greatest outward movement was seen for retail warehouses and retail at 65bps
and 61bps respectively (6.67% retail warehouse and 6.39% retail).
 All main sector initial yields were still below their respective long term averages.
 Average initial yield for Central London moved out by 45bps to 4.21% followed
closely by the average initial yield for Outer London by 44bps to 5.29% as

Dr K A Sieracki
illustrated in the chart below. All average initial yields by location were still
below their long term average.
 The North West average initial yield saw the only compression by 15bps to 6.89%
as shown in the chart below. Scotland saw outward compression of 115bps to
7.5%.
 The average lot size for Q3 2016 continued to increase to £31.2m from £29.4m
seen in Q2 2016 as shown in the graph below.

Dr K A Sieracki
 Offices remained the favourite sector at 30%, followed by Other at 23% as shown
in the pie chart below. Other includes motor related, hotels, petrol filling stations,
pubs, student accommodation, nursing homes, medical uses, educational and
residential.
 For the first three quarters of 2016, offices remained the favourite at 39%
followed by Other at 17%. Industrial continued to be steady at 9%.

Dr K A Sieracki
 For Q3 2016, UK institutions mainly preferred industrial, retail warehouse and
nursing homes.
 Overseas were the main investors in retail, student accommodation, motor related
properties, portfolios, residential and educational.
 UK REITs preferred nursing homes, industrial and hotels.
 On the sell side, UK institutions mainly sold motor related properties, offices,
retail warehouses, leisure and industrial.
 For UK unlisted property companies, it was industrial and retail whereas for UK
private investors it was leisure, pubs, residential and educational. Overseas
investors mainly sold student accommodation and portfolios.
 UK institutions were net investors mostly in retail warehouse, industrial and
hotels. Overseas were net investors mostly in retail, shopping centres, motor
related properties, hotels and residential. For UK REITs it was industrial, student
accommodation and hotels.
 On the net disinvestment side, the favourites were: for UK institutions it was
offices, motor related properties and retail/office; for UK unlisted property
companies it was retail, industrial, hotels and residential; for UK private investors
it was offices, hotels and residential and for UK REITs it was retail warehouse,
retail and shopping centres.
 By location in Q3 2016, Central London continued its popularity run at 33% as
shown in the pie chart below.
 UK wide followed at 22% with Outer London at 19%.

Dr K A Sieracki
 For the first three quarters of 2016, Central London remained strong at 35%
followed by UK wide at 18% as illustrated in the pie chart below.
 Outer London, South East and the Midlands has a relatively good showing at
11%, 10% and 9% respectively.
 Overseas investors remained big fans of Central London and Outer London but
also purchased in Wales, North West and Scotland. UK institutions mainly
purchased in the South East and Yorkshire.

Dr K A Sieracki
 For UK unlisted property companies, purchases were mostly in North East and
Scotland and for UK private investors it was West Midlands and East Anglia.
 UK institutions mostly sold in Central London, South West, Wales, North West
and Scotland.
 For UK unlisted property companies, the sell locations were East Midlands, East
Anglia and the South East. For UK private investors it was mostly in the South
East.
 Net investment for UK institutions was mainly in Outer London and Yorkshire.
 For UK REITs it was Central London, Outer London and Yorkshire. For
overseas investors it was Central London, Outer London and North West.
 Net disinvestment for UK institutions was Central London, North West, Scotland
and Wales. For UK unlisted property companies, it was Central London, Outer
London, South East and West midlands. For UK private investors it was Central
London.
Key Deals
* £500m - Portfolio of 88 NCP car parks - acquired by Davidson Kempner Capital from
Blackstone & RBS;
* £450m – 6.6% IY – Portfolio of 13 Marks & Spencer stores -
acquired by Fortress Investment Group from Topland Group Plc;
* £430m (circa) portfolio of student accommodation properties –acquired by GIC Real
Estate & GSA from Oaktree Capital;
* £400m -2.4% IY – Debenhams store, Oxford St, W1 - acquired by Ramsbury from
British Land Plc;
* £346m- Portfolio of 26 industrial, office, big box and high street retail properties-
acquired by Goldman Sachs from Alecta.
Looking Forward
Discontinuity exists between the occupier market and the investment market. Tenant
demand will shrink due to technology and low economic growth. Structural change is
upon us as nothing lasts forever. However, the investment market is pricing in robust
rental growth across the board. There is too much capital chasing real estate investment
due to its attractive yield relative to the other asset classes in this world of low interest
rates.

Dr K A Sieracki
Post BREXIT there will be some tenant demand but there will be too much available
space. Affordability will be key to locking into this tenant demand as well as the type of
spatial configuration. Younger portfolios are most likely to benefit.
The defensive stance to portfolios remains as capital values continue to decline.
DEFINITIONS & METHODOLOGY
SOURCE OF DATA – The data is derived from a wide range of research involving
cross-referencing of information from property press, auction results, agents’ letting and
sales particulars, Land Registry, Company and Fund reports, company websites, press
releases and direct research. The data from 3rd
parties are deemed to be reliable and most
transaction records are confirmed by two or more independent sources. We cannot,
however, guarantee accuracy and the data is subject to future amendments.
TRANSACTIONS – The purchase of a property or a number of properties in a single
transaction such as a shopping centre or an industrial park or a portfolio (see def. below)
of properties. Interests include freehold, long leasehold or virtual freeholds for
investment and owner occupation. With company takeovers, mergers and swaps only
property assets are included.
PRICE – For this exercise transactions acquired for below £1m are not included.
INITIAL YIELD – the initial return on income at purchase as reported by two or more
reliable sources.
RENT PER SQ FT – As reported

Dr K A Sieracki
ZONE A –As reported
AVERAGE – the arithmetic method as opposed to the Weighted average
DATE – The date of completion as verified by The Land Registry or when the
transaction was reliably reported and confirmed by at least two independent sources.
QUARTER DATES – We have split the data by quarters; 1 January to 31 March, 1
April to 30 June, 1 July to 30 September and 1 October to 31st
December.
PROPERTY USES
Offices – Mainly used for Class B1 office use including business parks and Science Parks
with an element of Research and Development space. Buildings which have a significant
proportion of retail space are classified “Retail/Offices” and those that have a significant
proportion of industrial space are classified “Industrial/Offices”
Retail – Use Classes A1, A2 (financial services such as Estate Agents) and A3
(restaurants). Also includes supermarkets and superstores and out of town shopping parks
and factory outlet centres where non –bulky goods are sold predominately
Shopping Centres – Includes regional shopping centres and centres over 20,000sqft but
does not include parades or arcades
Retail Warehouse –Includes usually large units selling bulky non food goods in out of
town parks and standalone units
Industrial – Includes B8 distribution warehouses as well as B2 manufacturing buildings
and Trade Counter Uses and Self Storage
Leisure – Health Clubs, Bingo, Leisure Parks, Cinemas, bowling alleys etc. Please note it
does not include hotels or pubs which are classified separately or restaurants (which are
classified retail)
Mixed – Where there are more than 2 main uses such as a property that comprises retail,
offices, leisure and residential uses
Portfolio – Where two or more distinct properties are bought of more than two sectors.
Where a portfolio comprises buildings of the same uses such as offices the transaction
will be placed under that sector rather than Portfolio
Motor –Related – Usually car showrooms, MOT and tyre and exhaust centres etc. Not
petrol station which are classified separately
Medical Uses – Doctors, Dentists, surgeries etc

Dr K A Sieracki
Student Accommodation – Primarily residential use for students in buildings held as
investments
Nursery – Care homes and Nursing Homes
INVESTORS
Institutions – Pension funds, property unit trusts, unit trusts, insurance companies etc.
Also UK Government, County and Local Councils.
Property Companies – Non –quoted UK registered companies
PLC Property Companies – Property companies quoted on the London Stock
Exchange, AIM and OFEX
Private Investors – UK based including syndicates and banks and financial institutions
and private equity firms acting for private investors
Owner –Occupiers – Companies that have acquired property primarily for their own
occupation
Joint Ventures and Limited Partnerships – An apportionment will be made between
different types of investor where known
Not Known – There are many transactions where it is difficult to identify the purchaser
since many will be held in offshore registered companies and in subsidiary companies but
we make every effort to identify ownerships through research including the Land
Registry. Where it is not possible to verify ownership we categorise ownership as not
known.
Overseas Investors – This does not include UK based investors who have financial
backing from overseas companies. We have split overseas investor into the most active;
Irish, German, Middle East, European, Scandinavian, USA, Canadian, Israeli, Far
East, Australian, Russian, Indian, South African.
LOCATION
Central London – WC, W1, W2, W6, W8, W11, SW1, SW3, SW6, SW7, SW10, SE1,
NW1, N1, EC1, EC2, EC3, EC4, E14 (Canary Wharf)
Outer London – London Boroughs outside Central London including those in Surrey,
Kent, Essex, Middlesex, Hertfordshire.
South East – Counties (other than those Boroughs in Outer London) of Surrey, Kent,
East Sussex, West Sussex, Essex, Hertfordshire, Buckinghamshire, Berkshire,
Oxfordshire, Hampshire. Also Channel Islands.

Dr K A Sieracki
South West – Dorset, Devon, Cornwall, Wiltshire, Somerset, Bristol
West Midlands – Birmingham, Warwickshire, Herefordshire, Worcestershire,
Shropshire, Staffordshire, Gloucestershire
East Midlands – Northamptonshire, Leicestershire, Nottinghamshire, Derbyshire,
Bedfordshire
East Anglia – Suffolk, Norfolk, Cambridgeshire, Lincolnshire
Wales
Scotland
North West – Manchester, Liverpool, Lancashire, Cheshire, Cumbria. Also Isle of Man
Yorkshire
North East – Newcastle, Durham, Tyneside, Northumberland
Northern Ireland

UK PROPERTY INVESTMENT BULLETIN Q3 2016

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