Cushman Q1 UK review: headline volumes down 20% but alternatives record bumper quarter

A total of £11.2bn of UK commercial real estate was traded in the first quarter, according to new data from Cushman & Wakefield, which reflects a 20% decline on the same period a year ago. However, investment volumes in alternative real estate assets – such as hotels, residential and care homes – reached £4.7bn in the quarter.

Cushman reported that the bumper quarter in alternative activity reflects 42% of the overall UK market, in the highest share on record and follows a 29% and 35% share growth in each of the previous two quarters, underscoring the continued demand for assets in these sectors.

Jason Winfield, Head of UK & Ireland Capital Markets at Cushman & Wakefield, explained:

“Investors are looking more broadly at the real estate market and while a flight to alternative assets is typically associated with late cycle strategies, the strength of the interest is unprecedented. The growing understanding and maturity of alternatives as an asset class is proving to be a significant driver for change. We can expect more fund raising for this type of asset this year as investors seek to capitalize on the opportunities available.”

Annualised volumes slowed to £59bn, down from £69bn a year ago. Activity was weaker in the mainstream sectors – office, retail and industrial. Volumes in residential and hotels held up in line with trends last quarter.

According to the MSCI monthly index equivalent yields across all sectors moved out over the first quarter with the All Property yield moving out 5 bps to 5.86%. The biggest swing was in retail (+13bps to 6.27%) and residential (+12bps to 5.31%). Both offices and industrial saw swings of less than 2bps. On an annualised basis most markets continue to show compression in yields – retail the exception.

Prime yields flatlined in most sectors, according to MSCI data, although no markets saw an inward movement in a clear sign that the we are at an advanced stage in the current cycle, Cushman reported in its analysis.  The average prime UK all property yield moved out 11bps to 4.74% and is now higher than in five other European markets. With a more marginal outward shift in secondary yields measured by MSCI, the gap between prime and secondary narrowed further to 111 bps.

Nigel Almond, Head of Data Analytics – EMEA Research at Cushman & Wakefield, explained:

“Uncertainties in the wider market sent gilt yields lower increasing the gap to property. With interest rates expected to remain lower in the near term we expect prime yields remain stable in most markets during 2019 as investors focus on better quality assets.

“The exception being retail where we generally expect some modest outward shift across the majority of markets – this is symptomatic of wider concerns over increased vacancies and expectations of weaker or negative rental growth as the sector grapples with changing consumer habits. With uncertainty in the market set to persist in the near term we see investment activity focussed on better quality assets, with longer term secure income. As a result, we expect the gap between prime and secondary to widen on the back of a greater outward drift in secondary yields.”

james.wallace@realassetmedia.com

The real growth will come from urban logistics

‘Logistics was always at the boundaries of the city and as the city grew logistics was pushed out. Today we see that logistics is coming back in’

After more than 50 years in the logistics sector, Jo de Wolf, CEO of Montea tells The Real Estate Day that the company has seen many evolutions in the sector. De Wolf sees ‘the real growth in our sector in the years to come will be in the delivery to the urban areas’ and also highlights the changing way in which logistics has been perceived. ‘Logistics was always at the boundaries of the city and as the city grew logistics was pushed out. Today we see that logistics is coming back in’

Jo de Wolf, CEO, Montea

Interview filmed by Real Asset Media at The EPRA and Bloomberg Intelligence Real Estate Summit, London, April 2019

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4th June, Stockholm: European Outlook H2: Nordics Investment Briefing

International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe.

The Nordics have been attracting record levels of investment in the last few years, thanks to strong economic and employment growth and low interest rates. Weak local currencies have attracted foreign investors, who have accounted for more than half of all deals.International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe. The country has seen huge capital inflows and increasing competition for assets, which has driven prices higher.

Will such levels of interest be sustained in 2019? Is political uncertainty in continental Europe, particularly with Brexit in the UK and unrest in France, making the Nordics the ultimate safe haven in Europe now? Will Sweden continue to lead the way? Will there be more competition for assets between domestic and foreign investors? Stockholm has become a go-to city: will its success continue or is there a problem with lack of supply? Is the housing sector at risk of overheating? Will Denmark continue to benefit from its Nordic status and proximity to mainland Europe? Given the strong urbanisation trend across the region, will the residential sector continue to offer opportunities? What is the outlook for Norway? Will Finland continue its upward trajectory? How is the logistics sector likely to perform across the region?

Speakers:

Fredrik Dackheden
Head of Transactions
Croisette Real Estate Partner, Sweden

Nicole Bangstad
Research Analyst
Savills Investment Management, Sweden

Adam Irányi
Head of Investment Europe II
Union Investment Real Estate GmbH, Germany

Nils Styf
CEO
Hemsö Fastighets AB, Sweden

Olle Håkanson Nobel
Partner, Transactions
Croisette Real Estate Partner, Sweden

Come to this time-efficient briefing, hear market experts discuss these and other themes and get to ask your own questions.

Registration is complimentary but places are limited and so please register now to guarantee your place.

Conference host Croisette Real Estate Partner

LMA: European lenders cite political uncertainty and competition for diminished deal flow as chief concerns

Political uncertainty and too much competition chasing too few deals are the twin challenges faced by European real estate lenders this year, a new survey by the Loan Market Association (LMA) shows, as voted by 75% of all respondents.

According to the survey, an uncertain political environment is the top concern, according to one in four respondents (40.6%), while more than one-third (34.4%) said picked the lack of deals and too strong competition as the current year’s biggest obstacle.

Source: LMA

The survey – which comprised 140 active lenders drawn from LMA’s membership across 17 markets throughout Europe – was conducted between April 4 and 18, ahead of LMA’s seventh real estate finance conference earlier this month. The survey aimed to determine where the key investment opportunities and challenges lay in Europe, which sectors and asset classes were most likely to drive future growth and where future lending would most likely be sourced from.

Almost half of all respondents believed the property cycle at at its peak (45.2%), while another quarter (25.8%) suggested the cycle had already entered contraction phase. In a subsequent question, a slight majority of respondents (51.6%) believe next year will see the start of the next real estate downturn.  Confidence remains robust for the environment in the UK, with almost two-thirds (65.6%) suggesting Britain remains a ‘safe-haven’. 

However, active lenders were equivocal on which European real estate market would stand to benefit most from Brexit.  Berlin as the modest city leader (17.9%), closely followed by Paris and Amsterdam (tied on 15.4%) who were closely followed by Frankfurt and Dublin (12.9% and 12.8%, respectively).

Source: LMA

PRS was name-checked as the hottest sector for real estate finance sector with just under one-third (31%) of the vote, followed by logistics (24.1%) and long leased assets (20.7%) in second and third, respectively. Turning to overseas investment into Europe, China is still considered the dominant capital source (38.9%), followed by Middle East (24.1%) and the Far East (20.7%).

Lenders were tied on capital requirements and risk retention rules related to securitisation, and changes to tax legislation and accounting standards as the dominant regulatory headaches, with each issue collecting more than on3-third of the total vote (34.4%). Finally, debt funds are again tipped to show the biggest growth in new lending in 2019, collecting more than half the respondents’ votes (51.7%), followed by insurance lenders (20.7%), with pension funds and banks tied on 13.8%.

The LMA aims to improve liquidity, efficiency and transparency in the primary and secondary syndicated loan markets in Europe, the Middle East and Africa (EMEA).

james.wallace@realassetmedia.com

‘The notion of placemaking has become a design driver’

Bloomberg’s HQ in the City has led the way and now more attention is being paid not just to space within the four walls of the building, but to integrating it within the local community

Michael Jones, Senior Partner, Foster & Partners, tells Real Estate Day that Bloomberg’s HQ in the City has led the way and now more attention is being paid not just to space within the four walls of the building, but to integrating it within the local community

Michael Jones, Senior Partner, Foster & Partners

Interview filmed by Real Asset Media at The EPRA and Bloomberg Intelligence Real Estate Summit, London, April 2019


Contact the editor here.

Listen to the podcast here:

4th June, Stockholm: European Outlook H2: Nordics Investment Briefing

International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe.

The Nordics have been attracting record levels of investment in the last few years, thanks to strong economic and employment growth and low interest rates. Weak local currencies have attracted foreign investors, who have accounted for more than half of all deals.International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe. The country has seen huge capital inflows and increasing competition for assets, which has driven prices higher.

Will such levels of interest be sustained in 2019? Is political uncertainty in continental Europe, particularly with Brexit in the UK and unrest in France, making the Nordics the ultimate safe haven in Europe now? Will Sweden continue to lead the way? Will there be more competition for assets between domestic and foreign investors? Stockholm has become a go-to city: will its success continue or is there a problem with lack of supply? Is the housing sector at risk of overheating? Will Denmark continue to benefit from its Nordic status and proximity to mainland Europe? Given the strong urbanisation trend across the region, will the residential sector continue to offer opportunities? What is the outlook for Norway? Will Finland continue its upward trajectory? How is the logistics sector likely to perform across the region?

Speakers:

Fredrik Dackheden
Head of Transactions
Croisette Real Estate Partner, Sweden

Nicole Bangstad
Research Analyst
Savills Investment Management, Sweden

Adam Irányi
Head of Investment Europe II
Union Investment Real Estate GmbH, Germany

Nils Styf
CEO
Hemsö Fastighets AB, Sweden

Olle Håkanson Nobel
Partner, Transactions
Croisette Real Estate Partner, Sweden

Come to this time-efficient briefing, hear market experts discuss these and other themes and get to ask your own questions.

Registration is complimentary but places are limited and so please register now to guarantee your place.

Conference host Croisette Real Estate Partner

Nordic focus: strong investor demand for prime while momentum rises in residential sector

Political uncertainties such as Brexit and the global trade war have the potential to weaken the economic development among the Nordic countries. But, according to Catella Research, these external forces have not yet impacted Nordic activity where markets continue to see strong investor demand for prime properties, cross-border activity and rising momentum in the residential sector.

Investor interest in Nordic markets by volume shifted from commercial to residential in 2018, as overall transaction volumes rose 2% year-on-year to €44.3 billion.

Highlights include:

  • Sweden reached the highest transaction volume of all Nordic countries with a total of €14.86 billion while Norway registered the highest growth rate, at 25% compared to 2017, and also represented the second strongest market in 2018 (€10.63 billion transaction volume). Although Finland achieved a slightly decline, the result of €8.9 billion is still the second highest of all time.
  • In Denmark, transaction volume decreased by 18 % to €9.86 billion, due to lower activity of foreign investors and a lack of larger portfolio deals, especially in the retail sector. Overall, property fund and institutional investors were the most active, contributing with approx. 69 % of the transactions. Danish investors were the most active in 2018 with a share of 55 %. Swedish investors were the most active players in Denmark, while US-headquartered companies could increase their investment activity compared to 2017.
  • The share of international investors decreased by 25% compared to 2017, mainly due to reticence of US and Asian investors. By contrast, foreign investment volumes in the residential sector increased significantly, by approx. 66%, the highest result which was ever recorded.
  • The most popular asset class remains the office sector, followed by residential real estate with steadily rising demand and transaction revenues. Retail properties follow in third place.
  • Stockholm is the most expensive office and residential location among the Nordic cities, with prime net yields of 3.50 and 1.5%, respectively. Highest prime yields can be found in Turku at 6.75%, both in the office and retail sector. 
  • Diversification potential across the Nordic countries remains high due to heterogeneous yield structure. There is a current yield gap of 525 basis points between the office, retail and residential sector in the different countries.

Thomas Beyerle, Head of Group Research at Catella, explains:

“Over the course of the year, we expect roughly stable or slightly increasing office rents in almost all North European markets. Because of continuously high demand for office space and a lagging development pipeline, a slight decrease of vacancy rates can be expected in most cities.”

james.wallace@realassetmedia.com

Highlights: EPRA & Bloomberg Intelligence 2019 Real Estate Forum

Retail has seen challenging times but there seems a more positive outlook as new brands appear and leisure and food are now coming to the fore.

Sue Munden, Senior Real Estate Analyst, Bloomberg Intelligence highlights some of the key takeaways from the London summit including the growing importance of mixed-use and the rise of wellbeing as a key differentiator for attracting and retaining talent. Retail has seen challenging times but there seems a more positive outlook as new brands appear and leisure and food are now coming to the fore. Industrial and Logistics spaces for retail have developed with a 4-8 hour delivery time but as demand for shorter delivery times increases this creates an increased focus on urban logistics.

Sue Munden, Senior Real Estate Analyst, Bloomberg Intelligence

Interview filmed by Real Asset Media at The EPRA and Bloomberg Intelligence Real Estate Summit, London, April 2019


Contact the editor here.

4th June, Stockholm: European Outlook H2: Nordics Investment Briefing

International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe.

The Nordics have been attracting record levels of investment in the last few years, thanks to strong economic and employment growth and low interest rates. Weak local currencies have attracted foreign investors, who have accounted for more than half of all deals.International investors continue to be attracted to Germany, which for many has replaced the UK as the first port of call in Europe. The country has seen huge capital inflows and increasing competition for assets, which has driven prices higher.

Will such levels of interest be sustained in 2019? Is political uncertainty in continental Europe, particularly with Brexit in the UK and unrest in France, making the Nordics the ultimate safe haven in Europe now? Will Sweden continue to lead the way? Will there be more competition for assets between domestic and foreign investors? Stockholm has become a go-to city: will its success continue or is there a problem with lack of supply? Is the housing sector at risk of overheating? Will Denmark continue to benefit from its Nordic status and proximity to mainland Europe? Given the strong urbanisation trend across the region, will the residential sector continue to offer opportunities? What is the outlook for Norway? Will Finland continue its upward trajectory? How is the logistics sector likely to perform across the region?

Speakers:

Fredrik Dackheden
Head of Transactions
Croisette Real Estate Partner, Sweden

Nicole Bangstad
Research Analyst
Savills Investment Management, Sweden

Adam Irányi
Head of Investment Europe II
Union Investment Real Estate GmbH, Germany

Nils Styf
CEO
Hemsö Fastighets AB, Sweden

Olle Håkanson Nobel
Partner, Transactions
Croisette Real Estate Partner, Sweden

Come to this time-efficient briefing, hear market experts discuss these and other themes and get to ask your own questions.

Registration is complimentary but places are limited and so please register now to guarantee your place.

Conference host Croisette Real Estate Partner

European self-storage: Eastern European markets showing rapid development

Eastern European self-storage markets including Poland, Romania and the Czech Republic having large purpose-built self-storage stores with some major brands developing quickly.

Developed markets like Spain and Sweden are continuing to show consistent growth and Germany has also demonstrated significant development in recent years.

The SSA UK, alongside Cushman & Wakefield, has produced its 13th annual industry report, which examines a range of data points and surveys on the growth prospects for the sector in 2019. The report looked at the state of the self-storage sector across Europe. In 2018, including the UK, there were 3,882 self-storage facilities totalling approximately 102 million sq ft of space.

Oliver Close, Partner, Cushman & Wakefield, explains:

“From an investment perspective, the growth and underlying fundamentals of the sector mean there remains significant interest. This is coming from a variety of sources including institutions and private equity as well as family offices.”

“There is also definite evidence of consolidation in the market with only a limited number of mid-tier size operators. We are also seeing significant competition for development sites in the best locations as affordable opportunities are limited due to competition from a range of other land uses. Prominent locations are also highly sought-after as the physical presence of a store is a great permanent advert when overall public awareness is still limited.”

Rennie Schafer, Chief Executive, Self-Storage Association UK, explains:

“The UK is a European market leader when it comes to the usage of self-storage, yet at the same time our annual report shows there is still relatively low awareness of the concept and the brands within it from the public at large.

“That is changing over time and use of self-storage is undoubtedly reflective of the way we live and work. It is there for domestic reasons such as people moving house, a death in a family or starting a new relationship. Equally, a growth in online businesses is fuelling the need for storage facilities and is supporting a wave of entrepreneurs. More than a third of space is taken by commercial customers. Overall, occupancy levels and profitability growth within the sector indicate demand is growing faster than supply, but at a lower rate than compared with the previous 12 months.”

james.wallace@realassetmedia.com