Presentation by Dan Crossley, Investment Partner,WHR Property Consultants LLPWHERE IS THE INVESTMENT MARKETTODAY AND WHERE IS IT HEADING?’Place North West AGMThursday 11 April 2013
Introduction• WHR is now 8 and a half years old• Main disciplines include Investment, Office and IndustrialAgency, Rating and Professional and Building Surveying.• Wide representation – large and small transactions• WHR are currently the largest independent firm of surveyorsin the North West• WHR now have 18 fee earners based in Manchester office.
Subjects for discussion• Where is the investment market currently?UK ‘All Property’ –volume of the investment market over the past10 – 12 years, highlighting the difficult periods of 2007 onwards.Regional – (North West). How the North West is fairing in relationto other regions.• The London and “Other Regions” Divide• Manchester hosts the X Factor – Manchester and NorthWest are on the radar ‘globally’• Supply – Where is it?• Demand – Demand is back , but what for?• Where is it all heading? - 5 year forecasts• Outlook
Where is the Market? –UK “all property”• In 1999 the total transactions were approximately £20 billion.• Then an almost 45oprojection up to the peak in 2006 with nearly £60 billion.• Sharp drop to £22 billion in 2008 – when it was really biting.• Significant jump in 2009 – 2010 of £11 billion to £34 billion.• Relatively constant for the past 3 years at between £32 - £36 billionSource: IPD UK Property Market Overview – Feb 2013
Where is the market - Sector Analysis 2012• Heavily distorted by Londontransactions• This shows physical trades, but notnecessarily reflective of demand.• Retail most startling - would expectthis to rebalance.
Where is the market – Sector Analysis -TotalReturns 201213.00.7-0.2-0.9-1.8-3.210.2-5.9-4.0-2.3-7.2-184.108.40.206.4-1.11.3-10 -5 0 5 10 15London West EndBirminghamBristolGlasgowLeedsManchesterTotal returns in 2012 %Standard Retail Office Industrial13.00.7-0.2-0.9-1.8-3.210.2-5.9-4.0-2.3-7.2-220.127.116.11.4-1.11.3-10 -5 0 5 10 15London WestEndBirminghamBristolGlasgowLeedsManchesterTotal returns in 2012 %Standard Retail Office Industrial
The London and “other regions” Divide• Latest IPD results reveal gap between London and the rest ofthe UK widened to 35% since 2009.• 2012 The most challenging year since the downturn• Prime London offices yield : 4.3%, Manchester : 6.3%• IPD shows little indication of improvement for regions• London has become “super efficient” in brokerage terms• Large non-performing loan packages between traders inLondon tend to stay in London.• Assets sold in London after 2009 have recorded at 25% profit
Manchester hosts the X Factor(and the North West)• Global brand• Most oversubscribed universities in thecountry• Good city centre logistics – airport, rail,road• Limited supply of new developments(office & Industrial)• Big sheds in particular in short supply• Relatively limited supply of existing• Only regional city showing rental growth(Offices 2.2%)• Strong local Government support andleadership (Manchester)• Manchester is attracting more foreignproperty investment than the other big 6UK cities (except London)
Manchester hosts the X Factor(and the North West)• Manchester is attracting more foreign property investmentthan the other big 6 UK cities (except London)• Manchester more “German” than British• Genuine demand globally (second city?)• No 2 on a shortlist of 2
Supply – where is the supply?• Banks Holding Back – depends on who they are and their outlook• Distressed debt trades – widespread over past 24 months – now abating?• Very few institutions selling• Large proportion of property companies now selling – consensually or“encouraged”• Encouraged annual debt reduction targets that need to be achieved aspart of new facilities• Limited new development “no new speculative industrial space above100,000 sq ft since 2008• More forward funding as “build to suit becomes viable”• Development “tipping point” close – making development sustainable• Not seeing the spin offs from the non performing loan transactions just yet
Demand – Demand is back in town,but what for?• Long leased prime is the ultimate• Long leased secondary out performed short leased prime (this may change)• Bookended market for past year– Prime demand is solid. Annuity buyers– “Double Digit” buyers. Investment managers/property companies• “Investment managers” really came into play in 2012• Asset management opportunities in demand – but are they not really chasingincome?• Institutions now showing strong signs of activity – going up the risk curve toget stock.• Over 55% of Q1 2013 transactions to institutions and managed funds(purchasers) – very few sales by institutions
Where is it all heading?All Property Annual Rental Value GrowthForecastAll Property Annual Capital Value Growth Forecasts• Rental growth expectations positive –first time in 5 qtrs• 2013 Negligible growth• 2016 Peak• 5 Year average of 1.7%• Still below long run average (3%)• Negative capital value growthcontinues (2013)• Growth peak in 2015• Growth thereafter still above 1%• Below long run average of 2.5%
Where is it all heading?All Property Annual Total Return Forecasts• 2013 still affected by negativecapital value growth• Reduced income return of 6% tototal of 5.2%• 2014 expected to be year ofpositive capital value growth.• Increases to 7.4% - the 5 yearaverage• Income return 6.1% capital return1.2%Source: Investment Property Forum UKCensus Forecasts – Feb 2013