Aberdeen hotel profits experienced double digit growth of 10.3% for 2014 based on the previous year. This ViewPoint explores to what extent low oil prices will have an impact on hotel trading performance and capital values in the market. Despite a strong relationship between hotel total revenue and oil prices, the paper highlights a lower correlation between the oil price and investor returns. Whilst the oil price remains low, further development of new hotels in the market is likely to be truncated. Thereby reducing the risk of future supply and allowing for unconstrained trading in the mid-term. Aberdeen continues to diversify its economic output through energy services and expertise, going beyond traditional oil production. This instils confidence for the long-term outlook of the hotel market.
2014 was the strongest year for occupier activity since the downturn in all the regional cities. Bristol and Manchester, in particular, were well ahead of long-term average, buoyed by deals on both large units and growth in activity amongst SMEs. Take-up was lower in the South East, but given the amount of space under offer, and lease event driven requirements, we expect 2015 to show a marked improvement. The occupier recovery has also led to growing interest from investors, pushing yields lower during the year. It has also triggered a new wave of speculative development. All the big cities now have some speculative office development underway – the first time in almost a decade that this has happened.
Take-up in Central London for February 2015 was 736,400 sq ft, a 12% drop on the previous month. Central London availability fell to 11.1 million sq ft in February, a monthly fall of 2%. Under offers increased by 20% over the course of the month to stand at 3.4 million sq ft, significantly above the 10-year average of 2.7 million sq ft. The largest deal to transact in February 2015 was a 61,100 sq ft letting to Investec at 30 Gresham Street, EC2.
Steady start to 2015 for UK commercial property The latest CBRE Monthly Index shows a steady start to 2015 after the very strong finish to last year, with both January and February recording slower capital and rental value growth. Average capital value growth for all UK commercial property increased by 0.5% in February, resulting in a total return of 0.9%. Rental values recorded the same rate of growth as in January (0.2%). Secondary property in all market segments excl. Central London saw negative capital value growth from Jun 2009 to Oct 2013. Since Nov 2013 there has been capital value growth for secondary property in all segments apart from offices outside the South East.
Demand for big box logistics warehousing, of over 100,000 sq ft, has continued to remain strong during 2014. For the year as a whole, a total of 20.2 million sq ft was acquired for occupation. The Midlands have dominated market activity in 2014, with over 11 million sq ft of take-up, a 55% share of total UK take-up during the year. The past year has also seen some of the last remaining space from the 2009 supply peak finally be taken for occupation. Deals to Staples in Corby and Wiggle in Walsall took some of the largest units out of the market and contributed to a record low for availability by the end of the year. Whilst new speculative development is now beginning to emerge, units are being rapidly acquired for occupation. With the lack of supply, we are now seeing rental growth. The pace of growth, particularly in London and the South East, is now well ahead of the rate of inflation, and is expected to stay ahead for the whole of 2015. This will be the first period of sustained real rental growth since 2000. With strong occupier fundamentals, the investment market has also been extremely active. A total of £2.87bn of logistics stock was sold during 2014, up from £1.8bn in 2013. UK institutions and property companies, such as Tritax and LondonMetric, have dominated purchasing activity, together accounting for 82% of purchases by value.