Tags Posts tagged with "Knight Frank"

Knight Frank

41

According to Knight Frank’s UK Retail Property Market Outlook 2015, dwindling supply of well-located stock will continue to drive South East and London rental growth, which will be factored into pricing by investors. Well-placed good secondary retail assets with solid demographics, will sell well.

Arguably, those schemes with the broadest consumer appeal will thrive at the expense of the poorer quality ones.  Key attributes could be the quality of tenant mix and accessibility, although the out-of-town market has moved steadily towards “fun shopping”.  As we have seen with high streets and shopping centres, the best out-of-town parks now provide an increased focus on a strong leisure and catering offer aimed at prolonging dwell times and boosting expenditure.

One potential cloud on the horizon –with the growth of online sales bringing store networks under ever increasing scrutiny, the forthcoming rush of lease expiries will provide retailers with an unprecedented opportunity to reduce property costs by downsizing their portfolios.  This is likely to reinforce the polarisation already being seen in the market, with secondary/weaker schemes suffering at the expense of the better schemes – bringing with it greater divergence in investment performance.  That said, while the rise of online shopping may result in smaller store portfolios, the growth in “click and collect” is helping to maintain the importance of the store.

Omni channel retailing will become the dominant norm in 2015. Occupiers will need to implement in store technology advancements in order to keep the consumer engaged and enhance the customer experience. Retailers should embrace strategies in which mobile, online and in-store experiences should complement, rather than compete with, one another.

Knight Frank predicts the first half of 2015 is likely to be dominated by uncertainty surrounding the general election; however, retail sales will receive a boost from a buoyant labour market, lower inflation on the back of the fall in oil prices. Slower but still positive house price growth will continue to support strong consumer confidence.

However, the retail market continues to be driven by structural change due to the growth of online shopping and profit margins for bricks-and-mortar retailers will continue to be squeezed by non-store sales and an increasingly internet savvy population.

The news that the Chancellor in his Autumn budget will cap the inflation-linked increase in business rates to 2% and undertake a full review of the structure of business rates is welcome news to the retail sector. However, fundamental changes need to be implemented going forward especially with consumer’s increasing preference to shop and buy online rather than in store.

UK regional office markets have seen subdued rental growth over the last few years. However, the broadening economic recovery is feeding through to improved occupier demand. This together with the diminishing availability of Grade A stock and lack of significant speculative development completions over the last few years is driving rental growth across the regions.

We expect to see strong rental growth in the majority of regional city centres over the next 12 months, with new development completions securing higher prime rental levels.

Manchester, Birmingham, Newcastle and Aberdeen will see the strongest growth while all other centres, apart from Sheffield, will see positive growth.

Prime headline rents in Manchester and Aberdeen are expected to reach record highs of £34.00 per sq ft by the end of 2015, representing corresponding increases of 10% and 6% over the year (see the chart above).

Birmingham offices will also see rents rise by 8% to a seven year high of £31 per sq ft. While we do not anticipate any rental growth in Sheffield in 2015, Sheffield rents are expected to rise more sharply up to £22.00 per sq ft by the end of 2016.

Given the diminishing availability of Grade A stock and lack of developments, vacancy rates are likely to fall or at least remain stable, with the exception of Aberdeen where the level of speculative development is higher.  We are also anticipating a slight softening of incentives over the next 12 months.

Louisa Rickard, associate, commercial research, Knight Frank, commented; “As economic growth spreads to the regions we expect to see prime office rents rise across regional city centres in 2015. Lack of supply at the prime end of the market will add further upward pressure on both prime and secondary rental growth”

58

UK regional office markets have seen subdued rental growth over the last few years. However, the broadening economic recovery is feeding through to improved occupier demand. This together with the diminishing availability of Grade A stock and lack of significant speculative development completions over the last few years is driving rental growth across the regions.

We expect to see strong rental growth in the majority of regional city centres over the next 12 months, with new development completions securing higher prime rental levels.

Manchester, Birmingham, Newcastle and Aberdeen will see the strongest growth while all other centres, apart from Sheffield, will see positive growth.

Prime headline rents in Manchester and Aberdeen are expected to reach record highs of £34.00 per sq ft by the end of 2015, representing corresponding increases of 10% and 6% over the year (see the chart above).

Birmingham offices will also see rents rise by 8% to a seven year high of £31 per sq ft. While we do not anticipate any rental growth in Sheffield in 2015, Sheffield rents are expected to rise more sharply up to £22.00 per sq ft by the end of 2016.

Given the diminishing availability of Grade A stock and lack of developments, vacancy rates are likely to fall or at least remain stable, with the exception of Aberdeen where the level of speculative development is higher.  We are also anticipating a slight softening of incentives over the next 12 months.

Louisa Rickard, associate, commercial research, Knight Frank, commented; “As economic growth spreads to the regions we expect to see prime office rents rise across regional city centres in 2015. Lack of supply at the prime end of the market will add further upward pressure on both prime and secondary rental growth”

53

While there are some lingering doubts about the strength and uneven nature of Europe’s economic recovery, both the EU and the Euro area are poised for positive growth in 2014 and 2015, according to Knight Frank’s 2015 European Market Forecast report.

Occupier markets are likely to continue to move in line with wider economic trends, with the Nordic countries and the Baltics currently seeing a significant improvement in occupier sentiment, while the UK is finally seeing a pick-up in its regional city markets.

However, perhaps the most encouraging trend is the rebound in some of the peripheral markets, Ireland and parts of Southern Europe, with Dublin and Madrid in particular recording solid rental increases in 2014 and further growth expected in 2015.

Despite the recent dip in economic performance, major French and German cities are also expected to perform well on the back of limited availability, with development yet to accelerate significantly in either country.  The Russia-Ukraine crisis meanwhile continues to weigh heavily on those countries and, while property markets in the wider Central and Eastern European region have remained relatively untouched by the conflict, plentiful supply has constrained rental growth in key cities such as Prague and Warsaw.

In the investment market, early indications show that transaction volumes for 2014 are likely to exceed the €160bn mark – around 10% up on 2013.  A significant amount of capital continues to target commercial real estate and our forecasts suggest a similar rate of growth in 2015, with total volumes expected to be in the range of €175-180bn.  All the main commercial sectors are attracting strong interest, while specialist sectors such as hotels, healthcare and student accommodation are becoming increasingly part of the mainstream property universe.

Darren Yates, head of global capital markets research, commented; “The really good news for both occupiers and investors is that rents in most markets remain lower than their pre-recession peaks – in some cases significantly below.  This should provide a further boost to activity in 2015, with more occupiers looking to take advantage of good deals, while investors will seek to cash in on better rental growth prospects as the economic outlook continues to improve.”

Andrew Sim, head of European Capital Markets, commented; “The forecasted 10% rise of commercial investment into European markets is a positive start for Q1 2015. We have witnessed some strong recovery in cities such as Madrid and Dublin and we are expecting demand to generally broaden out to smaller cities and investors looking to move increasing up the risk curve to target good quality secondary stock in addition to development opportunities.”

44

Knight Frank’s latest statistics show that nearly £1.8bn of deals will close in Q4.

This should result in another very healthy year of Shopping Centre transactions, indicating that the out-turn for 2014 will be around £5.64 billion. This is the highest anticipated annual total transaction sum since the record year of 2005.

These figures assume that two shopping centre portfolios conclude this calendar year namely the Rockspring (Tiger) Portfolio and the Bank of Ireland Portfolio (Project Foyle). It also assumes that Gingko Tree conclude their 50% acquisition of the Bentalls Shopping Centre in Kingston.

Knight Frank’s database indicates that in total some 84 shopping centres have been traded during 2014 which is the highest number since 2006.

Bruce Nutman, head of retail investment, Knight Frank commented; “We are continuing to see an impressive demand for the Shopping Centre sector within the UK. This is driven by a wide ranging group of investor types, fuelled by an improving debt market and nervousness when considering Continental European retail opportunities. We see this strength of investor demanding continuing in 2015 with a further £900 million either under offer or available in the market place”.

12

Knight Frank’s latest statistics show that nearly £1.8bn of deals will close in Q4.

This should result in another very healthy year of Shopping Centre transactions, indicating that the out-turn for 2014 will be around £5.64 billion. This is the highest anticipated annual total transaction sum since the record year of 2005.

These figures assume that two shopping centre portfolios conclude this calendar year namely the Rockspring (Tiger) Portfolio and the Bank of Ireland Portfolio (Project Foyle). It also assumes that Gingko Tree conclude their 50% acquisition of the Bentalls Shopping Centre in Kingston.

Knight Frank’s database indicates that in total some 84 shopping centres have been traded during 2014 which is the highest number since 2006.

Bruce Nutman, head of retail investment, Knight Frank commented; “We are continuing to see an impressive demand for the Shopping Centre sector within the UK. This is driven by a wide ranging group of investor types, fuelled by an improving debt market and nervousness when considering Continental European retail opportunities. We see this strength of investor demanding continuing in 2015 with a further £900 million either under offer or available in the market place”.

Knight Frank’s latest statistics show that nearly £1.8bn of deals will close in Q4.

This should result in another very healthy year of Shopping Centre transactions, indicating that the out-turn for 2014 will be around £5.64 billion. This is the highest anticipated annual total transaction sum since the record year of 2005.

These figures assume that two shopping centre portfolios conclude this calendar year namely the Rockspring (Tiger) Portfolio and the Bank of Ireland Portfolio (Project Foyle). It also assumes that Gingko Tree conclude their 50% acquisition of the Bentalls Shopping Centre in Kingston.

Knight Frank’s database indicates that in total some 84 shopping centres have been traded during 2014 which is the highest number since 2006.

Bruce Nutman, head of retail investment, Knight Frank commented; “We are continuing to see an impressive demand for the Shopping Centre sector within the UK. This is driven by a wide ranging group of investor types, fuelled by an improving debt market and nervousness when considering Continental European retail opportunities. We see this strength of investor demanding continuing in 2015 with a further £900 million either under offer or available in the market place”.

9

Leading London TV post-production company Evolutions has opened its second office in Whiteladies Road, Bristol, just one year after opening in the heart of the city’s media district.

Situated at 38 Whiteladies Road, the new building will provide additional capacity for the thriving business, which is one of the largest independent full service post production companies in London’s Soho.

Andy Smith of property consultants Knight Frank, which advised Evolutions on the acquisition of the 2035 sq ft Victorian villa, said: “Having recently let the 11,000 sq ft office at 11-13 Whiteladies Road to Evolutions it was great to be asked to acquire this additional space for them. Its size, configuration and location make No 38 an excellent fit for their requirement.”

Simon Kanjee, managing director, Evolutions says: “We are delighted to be opening a second building. Evolutions Bristol is doing better than we could have ever expected and has meant that we now must open a second site to accommodate that growing demand. Our investment in creative talent and facilities here is testament to how much we believe in the market in the South West. We have a strong commitment to the region and are proud to be employing more local staff and growing the talent pool in the area. Bristol is a great place to be and we look forward to expanding further in the future.”

Tom Dugay of Alder King who acted for the landlord said: “The letting of this building to Evolutions Bristol was a natural fit given its successful establishment in the city over the course of the previous year from the adjacent property.  Evolutions’ rapid expansion demonstrates once again the strength of the city’s thriving media and creative sector.”

25

2014 was a good year for commercial property, with IPD total returns rising above 20% and confidence in evidence almost across the board. So what happens in 2015? Here are our predictions for next year.

1. Growth will move back to a sustainable pace

While the punchy rebound seen by commercial property in 2014 is encouraging, the recent figures from IPD are not sustainable in the long-term. The total return numbers may accelerate a little further, but we expect them to drop back early in 2015, perhaps picking up again in the autumn on rental growth. This will be due to slower capital growth as investors acknowledge that prices have rebounded from the double-dip period. The slow and methodical business of increasing value by asset management then begins. Note though we are predicting a deceleration not a decline.

2. The UK funds are set to play a bigger role

Overseas capital has been a growing force in the UK in recent years, and in central London it has eclipsed the UK institutions. However, 2014 has seen a surge of new money flowing into UK retail property funds – see figure 2 – in fact it is possible this could prove to be a record year. Consequently, the UK unit funds will be more active in the market in 2015. We expect them to be targeting regional property, given pricing in central London is now built around the considerations of international not domestic buyers. The UK funds are also veterans in the regional markets, so are the investors best placed to go furthest up the risk curve by developing speculatively. If developing in the regions without a pre-let sounds bold, remember that a scheme commencing in 2015 is unlikely to arrive before 2017. By this time many regional occupier markets (some of which have seen little building since 2007) could be very under supplied with modern available stock.

3. The office market could see broad-based rental growth

A year ago one could only speak meaningfully of rental growth in central London, but in 2014 we saw it re-emerge for prime in many M25 towns, Birmingham, Glasgow, and Leeds. The regional breakdown for Markit’s UK purchasing managers index shows the economic recovery has transmitted well to the wider UK in the last year. Consequently, we expect office rents to rise across the regional city centres in 2015, and lack of development to date could quickly migrate rental growth from prime to secondary.

4. The election may have less impact than many expect

With less than six months to go it remains impossible to call the outcome of the general election other than to say another coalition looks likely. However, in 2010 an inconclusive outcome and post-election horse trading was a novelty for much of the electorate (and thus a source of uncertainty); in 2015 it will not be. Also, some of the more crowd-pleasing and riskier policies may well be watered down as part of negotiations between parties when they broker the next coalition. There is further austerity to come post-election, but the spending cuts of the Cameron / Clegg administration did not prove as damaging to growth as many feared. The same will probably be true of the next round of savings. Also, there will be election upside for property, such as the drive to build up a ‘Northern Powerhouse’. Manchester could offer opportunities given the proposed new technology institute announced in the budget, and similarly the new theatre will be good for local retail and leisure.

5. Retail to continue to polarise between destination and convenience

During 2014 we have seen the emerging landscape of retail in the digital age. This consists of a polarisation between ‘destination’ and ‘convenience’. Destination retail is part of a day out, where cafés, restaurants, and leisure become an integral part of the mix. Meanwhile the army of supermarket convenience outlets, supported by click-and-collect, are breathing life back into the local high street. Ultimately there should be footfall benefit for surrounding units, and we see the high street moving towards a mix of café culture and ‘artisan’ retail.

24

2014 was a good year for commercial property, with IPD total returns rising above 20% and confidence in evidence almost across the board. So what happens in 2015? Here are our predictions for next year.

1. Growth will move back to a sustainable pace

While the punchy rebound seen by commercial property in 2014 is encouraging, the recent figures from IPD are not sustainable in the long-term. The total return numbers may accelerate a little further, but we expect them to drop back early in 2015, perhaps picking up again in the autumn on rental growth. This will be due to slower capital growth as investors acknowledge that prices have rebounded from the double-dip period. The slow and methodical business of increasing value by asset management then begins. Note though we are predicting a deceleration not a decline.

2. The UK funds are set to play a bigger role

Overseas capital has been a growing force in the UK in recent years, and in central London it has eclipsed the UK institutions. However, 2014 has seen a surge of new money flowing into UK retail property funds – see figure 2 – in fact it is possible this could prove to be a record year. Consequently, the UK unit funds will be more active in the market in 2015. We expect them to be targeting regional property, given pricing in central London is now built around the considerations of international not domestic buyers. The UK funds are also veterans in the regional markets, so are the investors best placed to go furthest up the risk curve by developing speculatively. If developing in the regions without a pre-let sounds bold, remember that a scheme commencing in 2015 is unlikely to arrive before 2017. By this time many regional occupier markets (some of which have seen little building since 2007) could be very under supplied with modern available stock.

3. The office market could see broad-based rental growth

A year ago one could only speak meaningfully of rental growth in central London, but in 2014 we saw it re-emerge for prime in many M25 towns, Birmingham, Glasgow, and Leeds. The regional breakdown for Markit’s UK purchasing managers index shows the economic recovery has transmitted well to the wider UK in the last year. Consequently, we expect office rents to rise across the regional city centres in 2015, and lack of development to date could quickly migrate rental growth from prime to secondary.

4. The election may have less impact than many expect

With less than six months to go it remains impossible to call the outcome of the general election other than to say another coalition looks likely. However, in 2010 an inconclusive outcome and post-election horse trading was a novelty for much of the electorate (and thus a source of uncertainty); in 2015 it will not be. Also, some of the more crowd-pleasing and riskier policies may well be watered down as part of negotiations between parties when they broker the next coalition. There is further austerity to come post-election, but the spending cuts of the Cameron / Clegg administration did not prove as damaging to growth as many feared. The same will probably be true of the next round of savings. Also, there will be election upside for property, such as the drive to build up a ‘Northern Powerhouse’. Manchester could offer opportunities given the proposed new technology institute announced in the budget, and similarly the new theatre will be good for local retail and leisure.

5. Retail to continue to polarise between destination and convenience

During 2014 we have seen the emerging landscape of retail in the digital age. This consists of a polarisation between ‘destination’ and ‘convenience’. Destination retail is part of a day out, where cafés, restaurants, and leisure become an integral part of the mix. Meanwhile the army of supermarket convenience outlets, supported by click-and-collect, are breathing life back into the local high street. Ultimately there should be footfall benefit for surrounding units, and we see the high street moving towards a mix of café culture and ‘artisan’ retail.