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The Investment Market

Tim Luckman
Director, Valuation Advisory
5 February 2014
Agenda
• Economy
• Investment trends
• Office sector
• Industrial sector

• Retail and leisure sector
• Conclusions
Economy
UK Confidence Indicators

Optimism at post-crisis high

Source: European Commission, October 2013
GDP % YoY 1990-2017

Economic Growth

Eurozone leads the downswing in 2012
YoY%
6.0

UK

Eurozon e

Wo rld

Forecasts

4.0...
Investment Trends
Current Trends – UK Investment Activity
£ billions

Investment by Region
£30
£25
£25
£22
£20

£18

£17

£16

£15

£15
£12
...
Current Trends – Who are the vendors ?

3%

13%

Institutions / Pooled Funds
44%

Private Investor
Propco's

30%
7%

Insol...
Current Trends – Who are the purchasers?
Global
67%

UK
33%

Source: Jones Lang LaSalle, 2013

2013 (£m)

67%

33%
Global Sources of Funds
America

UK Domestic

Europe

Middle East
Global

Asia Pacific
Offices
Key Messages | Q4 2013
• Big 6 take-up totals 4.3m sq ft in 2013, up 35% compared to 2012
• Manchester & Leeds account for...
Manchester City Centre Take-up
Solid performance in terms of leasing activity
000s sq ft

Take-up

1,400

5 Year Average

...
Manchester Supply
Supply down 9% since end 2012
000s sq ft
Supply (LHS)

3,000

Vacancy Rate (RHS)

14%

12%

2,500

10%

...
Manchester Speculative Development | Q4 2013
Just one scheme currently under construction
900
800
000's sq ft

700
600
500...
Big 6 Investment Volumes by Purchaser Nationality
1400
1200
1000
800
600
400
200
0
2008

2009

2010
UK

Source: Jones Lang...
Long Term Prime Average Yields – UK Cities
Prime UK regional yields nearing long term average levels
Prime Yield %

Region...
One Angel Square, £142m
December 2012
REEF Estates/ Ginko Tree
Investments, 6 %
100 Barbirolli Square, £41m
June 2013
Moorfield and Oaktree Capital
Management, 8.75 %
1 Hardman Street £7m
December 2013

Charles Street Buildings
Group, 5.4%
Scottish Widows Investment
Partnership, 6.25 %

Sunlight House, £34.5m,
January 2014
Industrial
Industrial Market – Current themes
Occupational - Distribution
• Good levels of take up
• Grade A Supply continues to dimi...
Property Market Overview: Yields as at January 2014
Sentiment

Supply

Yield

Single-let
Prime

London

5.50%

South East
...
Standard Life
Investments, 5.6 %

Travis Perkins, Omega North,
£52.8m
October 2013
Delin, 7.5 %
Titan 350, £15m
January 2014
Retail and Leisure
Retail Warehouse / Leisure Investment Yields
(Stronger)

Restricted Parks (Bulky)

6.00%

(Stable)

Solus Bulky / DIY

12....
CBRE Global
Investors, 5.7%

The Circus, £24.45m
January 2014
Great Northern £71.1 m
September 2013

Confidential
Conclusions
SE will remain expensive
Who are and will be the purchasers?
2013–2015
AND FINALLY…
• Occupational markets continue to improve
• Rental growth
• More speculative development
• Further compressi...
Questions

Tim Luckman
Director, Valuation Advisory
One Piccadilly Gardens
Manchester
M1 1RG
tim.luckman@eu.jll.com
0161 8...
Tim Luckman, director of valuation advisory, JLL
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Tim Luckman, director of valuation advisory, JLL

  1. 1. The Investment Market Tim Luckman Director, Valuation Advisory 5 February 2014
  2. 2. Agenda • Economy • Investment trends • Office sector • Industrial sector • Retail and leisure sector • Conclusions
  3. 3. Economy
  4. 4. UK Confidence Indicators Optimism at post-crisis high Source: European Commission, October 2013
  5. 5. GDP % YoY 1990-2017 Economic Growth Eurozone leads the downswing in 2012 YoY% 6.0 UK Eurozon e Wo rld Forecasts 4.0 2.0 0.0 -2.0 -4.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -6.0 Source: Oxford Economics,
  6. 6. Investment Trends
  7. 7. Current Trends – UK Investment Activity £ billions Investment by Region £30 £25 £25 £22 £20 £18 £17 £16 £15 £15 £12 £12 £10 £12 £11 £8 £7 £5 £0.34 2008 2009 United Kingdom £0.39 £0.37 £0.15 £0 2010 2011 London 2012 Manchester £0.41 £0.16 2013
  8. 8. Current Trends – Who are the vendors ? 3% 13% Institutions / Pooled Funds 44% Private Investor Propco's 30% 7% Insolvency / Consensual 3% Unknown Other Source: Jones Lang LaSalle, 2013
  9. 9. Current Trends – Who are the purchasers? Global 67% UK 33% Source: Jones Lang LaSalle, 2013 2013 (£m) 67% 33%
  10. 10. Global Sources of Funds America UK Domestic Europe Middle East Global Asia Pacific
  11. 11. Offices
  12. 12. Key Messages | Q4 2013 • Big 6 take-up totals 4.3m sq ft in 2013, up 35% compared to 2012 • Manchester & Leeds account for the biggest share of take-up across the Big 6 • Big 6 supply down 15% since end 2012 - to 10.1 million sq ft • Average overall vacancy rate of 9.4%, across the Big 6 • Grade A supply severely constrained – further tightening expected in the short term • 1.0 million sq ft under construction across the Big 6, of which almost half is in Glasgow • Prime rents increase in a number of markets in Q4 2013 • The weight of money targeting the regions continues to place inward pressure on yields
  13. 13. Manchester City Centre Take-up Solid performance in terms of leasing activity 000s sq ft Take-up 1,400 5 Year Average 1,200 1,000 800 600 400 200 0 2003 2004 Source: Jones Lang LaSalle, 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013
  14. 14. Manchester Supply Supply down 9% since end 2012 000s sq ft Supply (LHS) 3,000 Vacancy Rate (RHS) 14% 12% 2,500 10% 2,000 8% 1,500 6% 1,000 4% 500 2% 0 0% 2003 2004 Source: Jones Lang LaSalle, 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013
  15. 15. Manchester Speculative Development | Q4 2013 Just one scheme currently under construction 900 800 000's sq ft 700 600 500 400 300 200 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Completed U/C Source: Jones Lang LaSalle 2014 Definite Spec Start Likely Spec Start 50/50 Spec Start
  16. 16. Big 6 Investment Volumes by Purchaser Nationality 1400 1200 1000 800 600 400 200 0 2008 2009 2010 UK Source: Jones Lang LaSalle 2014 Overseas 2011 Undisclosed 2012 2013
  17. 17. Long Term Prime Average Yields – UK Cities Prime UK regional yields nearing long term average levels Prime Yield % Regional Prime Yield 10.0 10 Year Average Long term Average 9.0 London City London West End 6.00% 6.23% 4.75% 5.38% 3.75% 4.37% 5.94% 5.54% 4.72% 8.0 7.0 6.0 5.0 4.0 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 3.0 Regional preferred Source: Jones Lang LaSalle 2014 West End WE Average City City Average
  18. 18. One Angel Square, £142m December 2012 REEF Estates/ Ginko Tree Investments, 6 %
  19. 19. 100 Barbirolli Square, £41m June 2013 Moorfield and Oaktree Capital Management, 8.75 %
  20. 20. 1 Hardman Street £7m December 2013 Charles Street Buildings Group, 5.4%
  21. 21. Scottish Widows Investment Partnership, 6.25 % Sunlight House, £34.5m, January 2014
  22. 22. Industrial
  23. 23. Industrial Market – Current themes Occupational - Distribution • Good levels of take up • Grade A Supply continues to diminish • Strong demand from retailers • Return of speculative development in prime locations Occupational - Estates • Demand and supply vary according to local micro markets • Limited new supply is hampering demand • Industrial land continues to suffer pressure from higher value uses • Increase in activity from occupiers catering for online retail fulfilment particularly parcel carriers
  24. 24. Property Market Overview: Yields as at January 2014 Sentiment Supply Yield Single-let Prime London 5.50% South East 5.75% Regions 6.00% • Good occupational story • Limited stock • Depth of investors • Yields down Multi-let Prime • Positive sentiment London 5.50% South East 5.75% Regions 6.75% • Asset class still looks good value • Strong demand will continue
  25. 25. Standard Life Investments, 5.6 % Travis Perkins, Omega North, £52.8m October 2013
  26. 26. Delin, 7.5 % Titan 350, £15m January 2014
  27. 27. Retail and Leisure
  28. 28. Retail Warehouse / Leisure Investment Yields (Stronger) Restricted Parks (Bulky) 6.00% (Stable) Solus Bulky / DIY 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 5.25% 6.25% (Stable) Secondary RW 7.25% (Stable) Foodstores 4.25% (Stronger) Leisure 6.00% (Stable) Mar-91 Mar-01 Mar-04 Mar-05 Mar-06 Mar-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Nov-12 Mar-13 Jun-13 Sep-13 Nov-13 Open A1 Parks (Fashion)
  29. 29. CBRE Global Investors, 5.7% The Circus, £24.45m January 2014
  30. 30. Great Northern £71.1 m September 2013 Confidential
  31. 31. Conclusions
  32. 32. SE will remain expensive
  33. 33. Who are and will be the purchasers? 2013–2015
  34. 34. AND FINALLY… • Occupational markets continue to improve • Rental growth • More speculative development • Further compression of yields • Gap between prime and secondary continues to narrow • More availability of debt BUT CAUTION – debt more expensive! • Generally, 2014 another strong year January – What a month!
  35. 35. Questions Tim Luckman Director, Valuation Advisory One Piccadilly Gardens Manchester M1 1RG tim.luckman@eu.jll.com 0161 828 6426 COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

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