The latest office development cycle in key UK markets and why active occupiers should take note. A new wave of speculative office development is spreading across the UK. With Grade A supply running exceptionally low in most markets the new development cycle could not have come soon enough. By early 2015 all of the UK’s large city office markets and the South East will have speculative development underway for the first time in almost a decade. This will introduce much need choice for occupiers across the country. But with demand still on the rise, prospective occupiers must act now in order to secure the best office space for their needs.
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.
RENTAL VALUE GROWTH PICKS UP ACROSS ALL SEGMENTS 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.
- Total take-up across all the regions and the Thames Valley & M25 has reached 3.99m sq ft, almost exactly on par with the same period last year and 20% above the average take-up of 3.3m sq ft during the ‘downturn’ period of 2008-2012; - Professional service firms have dominated take-up so far, accounting for 22% of floorspace transacted; - The ever diminishing pool of prime Grade A supply has led to developments in almost all regional centres either having already started or on the cusp of commencing, with site clearance underway in some instances; - The year has seen a vast improvement in the regional capital markets. With £1.5bn in volumes invested into the office sector this is already more then we saw transacted in the whole of 2011, 2012 and 2013 and is quickly approaching the ten year annual average of £1.8bn. - Capital growth we have seen this year has been driven entirely by yield compression. Outside of London and the South East there has been very little underlying rental growth in the regions.
SOUTH EAST OFFICES HIT THE ‘SWEET SPOT’ IN TERMS OF RENTAL GROWTH AND YIELD SHIFT Rental values for all UK commercial property continued to increase in Q2 2014, albeit at a slightly slower rate than in the previous quarter. Yield shift also contributed to capital value growth, with the average prime yield falling by a further 17 basis points over the quarter to stand at 5.7% at the end of Q2 2014. Capital values at the ‘All Property’ level increased by 3.8% over the quarter. The office sector is presenting an interesting pattern of performance. The Central London market is showing strong rental growth, however, yields have stabilized and showed very little movement in Q2. In contrast markets in the rest of the South East and Eastern regions are generally performing well in terms of both rental value growth and yield shift. The combination of increasing rental values and falling yields means that this part of the UK is currently showing the strongest capital value growth for the office sector. The other significant trend is the contrasting yield movements in the segments of the retail sector. Yields for both Shopping Centres and Retail Warehouses fell sharply in Q2 2014. In contrast the fall in the average prime yield for high street retail units was generally much smaller