real estate capital flows Miles Gibson Head of UK Research 12 End - - PowerPoint PPT Presentation

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Oct 26, 2022 157 likes •434 views

The global economy and real estate capital flows Miles Gibson Head of UK Research 12 End of cycle 10 fears are 8 growing 6 U.S. U-3 Unemployment (%, Monthly, SA) 4 3y 8m 7y 7m 9y 6m 11y 6y 4m 10y+ 2 0 1969 1971 1973 1975 1977

SLIDE 1

SLIDE 2

The global economy and real estate capital flows

Miles Gibson Head of UK Research

SLIDE 3

End of cycle fears are growing

U.S. U-3 Unemployment (%, Monthly, SA)

2 4 6 8 10 12 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 3y 8m 7y 7m 9y 6m 11y 6y 4m 10y+

Source: U.S. Bureau of Labor Statistics & CBRE Research, Q2 2018.

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There will be a dea eal l (eventually)

n ‘divorce’ and

‘transition’ ‘Canada plus’

r ‘EEA minus’

trade agreement Financial services access will be tough to secure Migration policy low-skill workers most affected

Brexit:

CBRE’S House View

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FORECAST

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 USA Euro Area UK China USA 10 year bond

An economic soft patch ahead

GDP growth, selected countries, 2012 - 2023, %

Source: CBRE Research, October 2018

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0.0 0.2 0.4 0.6 0.8 1.0 1.2 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 FORECAST

UK interest rates up… eventually, and slightly

UK base rate

Source: CBRE Research

SLIDE 7

Global savings increasing since 2000

Gross savings as % of global GDP

Source: Oxford Economics/Haver Analytics, Macrobond, CBRE Econometric Advisors, April 2018.

21 22 23 24 25 26 27

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 26% 24% 23% 23%

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Investment holding up

UK real estate investment volumes, 2004 - 2018, £bn

Source: CBRE Research, October 2018

10 20 30 40 50 60 70 80

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018f

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Globalisation works for real estate too

Overseas and domestic real estate investment volumes, £bn and % overseas share, 2004 - 2017

0% 10% 20% 30% 40% 50% 60% 10 20 30 40 50 60 70 80 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Investment Volumes (£bn) Overseas Investors UK Investors Overseas share (RHS)

Source: PropertyData

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And residential property has been a beneficiary

UK residential real estate investment volumes, £bn, 2004 - 2018 Q3

0.5 1 1.5 2 2.5 3 3.5

2004 Q4 2005 Q1 2005 Q2 2005 Q3 2005 Q4 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2 2018 Q3 Investment Volumes (£bn)

Source: PropertyData, CBRE

SLIDE 11 Source: CBRE Research, April 2018

The rise of alternatives

UK property investment volumes, by sector, 2008 - 2017

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Other Industrial Retail Office

SLIDE 12 Source: CBRE Investor Intentions Survey, March 2018

Most investors have alternatives… and want more

UK property investment volumes, by sector, 2008 - 2017, %

0% 10% 20% 30% 40% 50% 60% 70% 80%

Student Living Retirement Living Multi-Family Residential Healthcare Leisure/Entertainment Data Centre Automotive/Car Parks

Already invested and actively pursuing further exposure Not invested, but actively looking for exposure Already invested, but not looking for further exposure

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Alternatives: More traditional than ‘traditional sectors’?

Most leases signed for 20+ years Indexed returns RPI more common in such leases Lower vacancy rates Due to demand and supply mismatch Granular underlying demand Individuals, not companies Tenant default rate Can be lower than main-stream sectors

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Conclusions

Interest rates have a fair way to rise Led by the US Global economic downturn Likely, but should be moderate Brexit drag Retarding UK’s position in the economic cycle Elevated capital flows are substantial and structural With real estate benefiting Alternatives looking attractive But not immune from the cycle

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What does this mean for UK BTR?

Helen Gray Head of Build To Rent Consultancy

SLIDE 16

Economic backdrop will continue to support the housing market

Source: RICS, Land Registry

Investor demand Supply and demand Occupational demand Strong economic fundamentals

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Rental forecasts

2018 - 2022

Source:

0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 2019 2020 2021 2022 2023 UK LONDON

SLIDE 18

BTR supply

Source: BPF

67,100

London

64,700

Rest of UK

Total UK BTR:

131,900 units

125 248 332

50 100 150 200 250 300 350 Complete Construction Planning

No. of units

Average scheme size

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Product

Source: RICS, Land Registry

Suburban BTR Price point Flexibility Greater differentiation

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£0 £500 £1,000 £1,500 £2,000 £2,500 £3,000

2015 2016 2017 2018 ytd

Investment Volumes (£m)

Residential investment volumes

Source: CBRE * Excl. Wembley Park in 2008 ‘On the Market’. Rumoured asking price >£3bn.

£2.4bn

Total 2017 investment volumes

£700m

2018 under offer

£2.1bn

2018 yr-to-date

£3bn

plus

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Market Capacity

£103bn

(US$145bn) US multi-family

£91bn

(US$128bn) US offices

£67.9bn

All UK property

£27.2bn

All UK offices

£4.6bn

Purpose -built student accommodation

£2.4bn

Total residential investment volume

SLIDE 22

£32bn

SLIDE 23 UK

46%

32%

Canada

13%

Middle East

25%

31%

Canada

14%

Middle East

Europe

Asia/Pacific

16%

Interested capital Transactions

SLIDE 24

Transaction type

Source: CBRE

Standing investment Forward funding Forward commitment Land

2015 2016 2017 2018

YTD

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£0.0 £0.5 £1.0 £1.5 £2.0 £2.5 £3.0 £3.5 £4.0 2009 2010 2011 2012 2013 2014 2015 2016 2017

Billions

Portfolios Single Assets Portfolio - Long Term Average Portfolio - Single Assets

The student sector

Investment volumes

SLIDE 26

Brexit:

£32bn

THANK YOU