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Total returns for All Property were 1.6% in September, driven by capital value growth of 1.2% over the month.
Significant improvements were seen in the rate of rental value growth across all main sectors in September. All Property recorded rental value growth of 0.3% over the month, the strongest rate since December 2008.
While the other property sectors saw rental values start to pick up some time ago, the retail sector has lagged behind. As a whole the retail sector recorded rental value growth of 0.3% in the month.
Strong capital value growth in the UK means that total returns at the ‘All Property’ level in the first three quarters of 2014 have already exceeded those for 2013 as a whole. This is also true of all the segments monitored in CBRE’s monthly index, with the exception of West End offices.
From 1 April 2015 a new property transaction tax will launch in Scotland, replacing the existing UK wide Stamp Duty Land Tax (SDLT). Land and Buildings Transaction Tax (LBTT) becomes the first tax to be levied and collected in Scotland since the Act of Union in 1707.
As part of the draft Scottish Budget for 2015-16, the detailed bands and rates that will apply upon launch have now been announced. For the first time we can assess the impact of the tax’s introduction.
This ViewPoint outlines what those bands and rates are, how LBTT will be calculated for both residential and non-residential properties, and how the tax due will differ from SDLT.
The report also outlines the impact LBTT may have on commercial property values in Scotland.
Despite the ongoing turmoil on grocery markets, following Big-4 market share losses, UK grocery branch growth shows little sign of slackening. Acquisition and development activity is however increasingly led from the small unit (sub-15,000 sq ft) end. Sainsbury’s, M&S Simply Food, Waitrose, Asda, Aldi and Lidl remain on the expansion trail for small stores. Other discounters selling dry grocers also continue to expand aggressively. Enthusiasm for hypermarket development has meanwhile waned but superstore development continues.
YIELD SHIFT ACCELERATING OUTSIDE LONDON AND THE SOUTH EAST AS REAL ESTATE INVESTORS SEARCH FOR VALUE
At the national level, prime UK rents continued to rise during Q3. Rental values increased by 0.6% over the quarter and 2.4% over the last nine months. All the main sectors except retail warehouses experienced positive rental value growth. Prime yields fell by an average of 7 basis points to 5.7% over the quarter. So far this year yields have fallen by an average of -42 basis points.
Despite the weakness in rental values there continues to be very strong investor demand for retail warehouses across the UK. Over the last twelve months there have been over £3 billion of retail warehouse transactions, the highest level since 2007, with UK institutions by far the most active buyers.
In terms of yields shift, the office sector recorded an interesting pattern, with Rest of the UK seeing significantly more yield compression than London, South East and Eastern. On average, Rest of UK excl. South East and Eastern recorded -13 basis points fall in yields. In contrast, prime yields in London remained stable.
In terms of the investments, investors have been switching their attention towards the Rest of UK in 2014 in search of higher yields and better relative value. This has already been reflected in strong growth in investment activity, which is up 30% and the substantial yield premium means there is potential for significant further yield shift.
Neil Blake and Graham Barnes, experts from leading real estate provider CBRE, provide monthly analysis on the latest macroeconomic and capital markets factors that shape and influence commercial real estate markets.
As usual things have quietened down over the summer. After the surge of positive property market and economic news in the earlier part of the year, attention has turned to international events, annual leave and the ritual of rainy bank holidays. If anything, there is a bit of a feeling that the UK’s economic recovery may be softening driven, not least, by a string of disappointing economic news from the larger Eurozone countries and the generally sideways movement of equity markets since the spring. A glance at recent economic statistics, however, does not really support the softening recovery hypothesis.
True, manufacturing has come off the boil. The PMI survey results have weakened and manufacturing output is down. This reminds us that manufacturing remains the sector most exposed to international difficulties. In contrast, for services there has been some improvement in the PMI over the last two months but the situation since last summer can best be described as “bumping along the top” (in sharp contrast to the “bumping along the bottom” that we became used to during the recession). Eurostat’s Economic Sentiment Indicator for the UK also jumped up last autumn and, despite small month-to-month movements, has remained extraordinarily strong ever since. These levels of survey responses are easily consistent with Q3 growth at or above the 0.8% recorded in the first and second quarters.
It has not been a quiet summer. One could have assumed that the sale of Lend Lease’s interest in Bluewater to Land Securities was the last big deal before the autumn, but that would have been a mistake.
Against a background of, at best, variable economic and political news: UK real wages falling, the Eurozone GDP at best flat and Germany shrinking, wars and rumours of wars in Ukraine and the Middle East (Syria, Gaza, Iraq) and political instability in France, the attraction of commercial real estate has been, at the very least, maintained.
In the UK we have seen continued activity across the asset quality spectrum and across the capital stack. By way of examples I would pick the sale of Max Property’s entire business to Blackstone at a 22% premium to net asset value and the acquisition of Woolgate Exchange by Cathay Life, the Taiwanese insurer, from TPG Capital and Ivanhoe Cambridge for £320 million, compared to its last transaction price of £260 million in February 2013. In the capital sphere the pricing of the Westfield Stratford £750 million CMBS at a spread of 75bp sets a new post-crisis low. This process of capital flow towards real estate does not seem to be over with reports of in excess of 200 registrations of interest in 30 St Mary Axe (despite pricing expectations in excess of £600 million) which is being brought to the market by the receiver.