United Kingdom Real Estate Report

Published 12 January 2015

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United Kingdom Real Estate Report

BMI View: T he UK commercial real estate will continue to outperform that of much of the Western European region over the next two years as the country's solid economy recovery continues to support demand across the three sub-sectors we monitor. However, rental rate growth is set to moderate as high supply weighs on demand.

The UK boasts an extremely developed commercial real estate sector, with a strong private sector-led economy supporting robust demand across the office, retail and industrial real estate segments. The market's trajectory has roughly followed that of the wider economy over the past few years, with the UK's recovery from the 2008/2009 financial crisis and subsequent economic downturn among the most impressive of any of the OECD region.

The office and retail real estate sub-sectors in particular have enjoyed particularly strong growth over the past few years with recovery in the financial services and retail sectors supporting new demand for commercial space. Of the two, it is the performance of the retail real estate market that has arguably been the most impressive, as falling unemployment and strengthening consumer confidence has driven household spending and retail sales higher

The odd one out in this equation is the industrial real estate segment, where rental rate and yield growth has been limited over the past few years. The need for manufacturing space has declined as the UK de-industrialises and a sluggish recovery by the UK's main eurozone export markets dampens demand across the sector. However, a lack of supply in logistics and other retail facilities means that rental rates for the industrial market are likely to hold steady over the coming quarters. At the lower end of the market, significant opportunities exist in the high-growth industrial space such as urban and edge-of-town distribution centres for small load deliveries as e-commerce evolves.

One of the main drawbacks in the country's commercial real estate sector until now...

Table of Contents

BMI Industry View
7
SWOT
9
Political
11
Economic
12
Industry Forecast
13
Office
14
Table: Forecast Rents, 2015-2016 (USD per sq m per month)
15
Table: Forecast Net Yield, 2015-2016 (%)
15
Retail
15
Table: Forecast Rents, 2015-2016 (USD per sq m per month)
16
Table: Forecast Net Yield, 2015-2016 (%)
16
Industrial
16
Table: Forecast Rents, 2015-2016 (USD per sq m per month)
17
Table: Forecast Net Yield, 2011-2018 (%)
17
Construction And Infrastructure Forecast Scenario
17
Table: Construction And Infrastructure Industry Data (United Kingdom 2012-2017)
17
Table: Construction And Infrastructure Industry Data (United Kingdom 2018-2023)
19
Macroeconomic Forecasts
25
Table: United Kingdom - Economic Activity
31
Industry Risk Reward Ratings
32
Developed States Risk/Reward Index
32
Table: Developed States Real Estate Risk/Reward Index
32
United Kingdom - Risk/Reward Index
32
Rewards
32
Risks
33
Market Overview
34
Office
39
Table: Historic Rents - 2013-2014 (USD per sq m per month)
41
Table: Net Yield, 2013-2014 (%)
41
Table: Terms Of Rental Contract/Leases - H214
42
Retail
42
Table: Historic Rents - 2013-2014 (USD per sq m per month)
44
Table: Net Yield, 2013-2014 (%)
44
Table: Terms Of Rental Contract/Leases - H134
45
Industrial
46
Table: Historic Rents - 2013-2014 (USD per sq m per month)
47
Table: Net Yield, 2013-2014 (%)
48
Table: Terms Of Rental Contract/Leases - H214
48
Competitive Landscape
49
Company Profile
52
British Land
52
Hammerson
54
Land Securities
57
SEGRO
60
Demographic Forecast
62
Table: Population Headline Indicators (United Kingdom 1990-2025)
63
Table: Key Population Ratios (United Kingdom 1990-2025)
63
Table: Urban/Rural Population & Life Expectancy (United Kingdom 1990-2025)
64
Table: Population By Age Group (United Kingdom 1990-2025)
64
Table: Population By Age Group % (United Kingdom 1990-2025)
65
Methodology
67
Industry Forecast Methodology
67
Sources
68
Risk/Reward Index Methodology
69
Table: Real Estate Risk/Reward Index Indicators
70
Table: Weighting Of Indicators
71

The United Kingdom Real Estate Report features BMI Research's market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.

BMI's United Kingdom Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in United Kingdom.

Key Benefits

  • Benchmark BMI's independent real estate industry forecasts for United Kingdom to test other views - a key input for successful budgeting and strategic business planning in the British real estate market.
  • Target business opportunities and risks in United Kingdom through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
  • Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).

Coverage

BMI Industry View

Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.

Industry SWOT Analysis

Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.

Industry Forecasts Outlook

Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.

Indicators Include:

  • Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
  • Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
  • economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).

BMI’s Real Estate Risk Reward Index

BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.

Market Overview

Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors

Market Analysis

Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.

Company Profiles*

Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.

*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.

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Testimonials

'An essential, multi-faceted research tool. BMI’s thorough understanding of the major market players enables an informed – and informative – review of the sector’s actual performance, together with useful insights into current industry issues, which are topped-off with detailed and invaluable forecasts of industry and macroeconomic trends.’

Senior Research Analyst, ABC International Bank plc