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UK Commercial Property market report

Everything you need to make the right decisions

Providing the most comprehensive and up-to-date information and analysis of the Commercial Property market, and the behaviours, preferences and habits of the consumer.

Mintel has the answers you’re looking for

What are the key challenges facing the industry and how fast are its rates of growth? Who is the consumer and what do they want? Where are the opportunities, where are the risks and what lies ahead?

Definitions

The terms of reference for this report concern the UK commercial property market, which includes owner-occupied and investor-owned properties. The report focusses on investors’ share of the market. Commercial property is defined as including retail, offices, industrial premises (warehouses and most types of factory), and ‘other commercial’ properties typically used for business purposes, such as leisure (cinemas, fitness clubs and gyms, leisure parks, etc.), hotels, petrol stations, and other miscellaneous types. The report excludes other commercial property sectors, such as health and education, museums and libraries, sports grounds, courts and prisons, heavy industrial plants, infrastructure and open structures, such as theme parks.

For the purpose of this report, the market is segmented as follows:

  • Retail: Shops, shopping centres, supermarkets, retail warehouses, post offices, bank branches, hairdressers and beauty salons, cafes, take-aways, restaurants and pubs, car showrooms, and garden centres.
  • Offices: Offices, business units, data and computer centres.
  • Industrial: Warehouses and stores, factories and workshops, newspaper printing works etc.
  • Other Commercial: Bingo halls, bowling alleys, casinos, cinemas and theatres, arenas, concert halls and exhibition centres, night clubs, hotels, health farms, gyms, sports centres and swimming pools, caravan parks and holiday sites, purpose-built car parks, petrol stations, film, TV and recording studios.

The investment element of the commercial property market comprises a number of different investor types, which are defined by the Investment Property Forum (IPF) as follows:

  • UK Institutions (insurance companies and pension funds) - Insurance company long-term funds, unit-linked life and pension funds, managed property funds
  • UK & Channel Island domiciled collective investment schemes - Authorised and unauthorised property unit trusts and similar, limited partnerships domiciled in the UK and Channel Islands. Includes Channel Islands property investment companies, but excludes insurance company managed property funds.
  • UK REITS and listed companies - Companies listed on the main market of the London Stock Exchange and incorporated in the UK under the REIT and Real Estate Holding & Development categories.
  • UK private property companies - Other companies undertaking activities classified under the 2007 SIC either as “the development of building projects”, “the buying and selling of own real estate”, or “the renting and operating of own real estate”.
  • UK traditional estates/charities - Charities and traditional landed estates.
  • UK private investors - Individuals, family trusts, high net worth syndicates.
  • UK other - Mainly local authorities and pub owners.
  • Overseas investors - All those domiciled outside the UK and Channel Islands, excluding foreign owned fund managers, insurance companies, and pension funds investing UK sourced capital.

Expert analysis from a specialist in the field

Written by Claudia Preedy, a leading analyst in the B2B sector, her extensive knowledge delivers in-depth commentary and analysis to highlight current trends and add expert context to the numbers.

The short-term outlook for the UK commercial property market remains cautiously optimistic, with growth of 1% in real terms predicted for 2018. However, there is some disparity between major sectors, with industrial and alternative assets expected to outperform, while sentiment in the retail sector continues to weaken. Claudia Preedy
B2B Analyst

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Table of contents

  1. Executive Summary

      • The market
        • Commercial property market demonstrates solid performance in 2017
          • Figure 1: Value of UK commercial property market, 2009-17
        • Investment market supported by continued influx of overseas buyers and a better than expected economic performance in 2017
          • Figure 2: Investor-owned share of UK commercial property market, 2013-17
        • Retail remains largest sector of commercial property market
          • Share of office sector rises to 31% in 2017
            • Industrial property outperforms all other major sectors in 2017
              • Investors continue to be attracted to ‘alternative’ assets
                • Outlook for industrial and ‘other’ commercial property market remains positive, but sentiment in retail sector weakens
                  • Figure 3: Segmentation of the UK commercial property market, by sector, 2013-17
                • Market factors
                  • Record low interest rates provide positive impetus for investment market, but hikes are on the horizon
                    • BOE downgrades economic growth forecast for 2017
                      • Business rate hikes contribute to woes faced by retailers
                        • Companies
                          • Overseas investors are the largest investor type in the UK commercial property market
                            • Institutional investors are the second largest investor type
                              • Real Estate Investment Funds (REITs) dominate shopping centre sector
                                • Figure 4: Holdings in commercial property market, by investor type, 2017
                              • What we think
                              • Key Insights

                                  • What is the impact of Brexit on the UK commercial property market?
                                    • What is the short-term outlook for the key sectors of the commercial property market?
                                      • Why are ‘alternative’ commercial property assets becoming more popular with investors? Which assets attract the most attention?
                                      • Introduction

                                          • Definitions
                                            • Methodology
                                              • Abbreviations
                                                • Market positioning
                                                  • The commercial property performance cycle
                                                  • UK Economy

                                                    • Overview
                                                      • Figure 5: Forecast GDP development 2017-22
                                                      • Figure 6: UK GDP quarterly development, 2004-18
                                                    • Inflation
                                                      • House prices
                                                        • Figure 7: UK house price changes, 2007-18
                                                      • Interest rates
                                                        • Consumer spending
                                                          • Manufacturing
                                                            • Figure 8: UK manufacturing, 2014-18
                                                          • Business investment
                                                            • Figure 9: UK GFCF 2003-17
                                                          • Imports
                                                            • Exports
                                                            • Market Factors

                                                              • Key points
                                                                • Economic factors
                                                                  • UK Purchasing Manager Index (PMI) for Services Industries
                                                                    • UK Manufacturing Purchasing Manager Index (PMI)
                                                                      • Retail sales and rise in online sales
                                                                        • Figure 10: Growth of value of retail sales at current prices seasonally adjusted, 2011-17
                                                                      • Other factors
                                                                        • Impact of planning laws on commercial property supply
                                                                          • Supply and demand factors
                                                                            • Latest business rates revaluation has biggest impact on London retail and office sectors
                                                                              • Proposed to Capital Gains Tax (CGT) for offshore vehicles could dampen overseas investor sentiment
                                                                                • Return on property investment
                                                                                  • Figure 11: Annual property returns, by sector, 2013-17
                                                                                • Government Hubs programme to boost regional office take-up in the short term
                                                                                  • New stamp duty rates for commercial property
                                                                                    • Non-residential property transactions
                                                                                      • Figure 12: UK non-residential property transaction completions, by country, 2013-17
                                                                                      • Figure 13: UK non-residential property transaction completions, 2013-17
                                                                                    • Private commercial construction output
                                                                                      • Figure 14: Long term trend in private commercial construction output in Great Britain, 1970-2017
                                                                                      • Figure 15: Analysis of private commercial construction in Great Britain, by type, 2013-17
                                                                                    • Private industrial construction output
                                                                                      • Figure 16: Long term trend in private industrial construction output in Great Britain, 1970-2017
                                                                                      • Figure 17: Analysis of private industrial new construction work in Great Britain, by sector 2013-17
                                                                                  • Market Size & Segmentation

                                                                                    • Key points
                                                                                      • Overview
                                                                                        • Commercial property investment market proves robust in 2017
                                                                                          • ‘Alternative’ commercial property attracting increased interest from investors looking for secure, long-term income
                                                                                              • Figure 18: Value of UK commercial property market, 2013-17
                                                                                              • Figure 19: Value of UK commercial property market, 2009-17
                                                                                              • Figure 20: Investor share of UK commercial property market, 2013-17
                                                                                              • Figure 21: UK commercial property floorspace and rental value, 2009-16
                                                                                            • Market segmentation
                                                                                              • Segmentation by sector
                                                                                                • Figure 22: Segmentation of the UK commercial property market, by sector, 2013-17
                                                                                                • Figure 23: Sector share of investor-owned commercial property stock, 2017
                                                                                              • Segmentation by investor-type
                                                                                                • Figure 24: Holdings in commercial property market, by investor type, 2015-17
                                                                                                • Figure 25: Investor commercial property market, by sector, South East and rest of UK, 2017
                                                                                            • Office Sector

                                                                                              • Key points
                                                                                                • Overview
                                                                                                  • Overseas investors drive growth in London office sector
                                                                                                    • Shift away from owner-occupied offices
                                                                                                      • Rise in demand for flexible workspace
                                                                                                        • Investors look to prime regional office markets for investment opportunities
                                                                                                          • London offices
                                                                                                            • London office supply pipeline
                                                                                                              • Regional office supply pipeline
                                                                                                                • Figure 26: Capital value of the UK office market, 2013-17
                                                                                                                • Figure 27: UK offices market, by region, 2017
                                                                                                                • Figure 28: Office property transactions in Great Britain, 2013-18
                                                                                                                • Figure 29: Office Property transactions by investor type, year-to-date 2018
                                                                                                                • Figure 30: UK office floorspace and rental value, 2010-16
                                                                                                            • Retail Sector

                                                                                                              • Key points
                                                                                                                • Overview
                                                                                                                  • UK retail property sector undergoes major structural change, driven by online and multichannel retail
                                                                                                                    • Retail property owners continue to face considerable risks amid rising rate of retail failures and store closures
                                                                                                                      • Winners emerge out of the structural change
                                                                                                                        • Investor sentiment remains cautious in the retail sector
                                                                                                                          • Shopping centre developments embrace the leisure ‘experience’ economy
                                                                                                                            • Investors return to supermarket property after a few years of muted activity
                                                                                                                                • Figure 31: Capital value of the UK retail property market, 2013-17
                                                                                                                                • Figure 32: UK retail property market, by sector, 2017
                                                                                                                                • Figure 33: Retail property transactions in Great Britain, 2013-18
                                                                                                                                • Figure 34: Shopping centre property transactions by investor type, year-to-date 2018
                                                                                                                                • Figure 35: Retail warehouse property transactions by investor type, year-to-date 2018
                                                                                                                                • Figure 36: Shop/supermarket property transactions by investor type, year-to-date 2018
                                                                                                                                • Figure 37: UK retail floorspace and rental value, 2010-16
                                                                                                                            • Industrial Sector

                                                                                                                              • Key points
                                                                                                                                • Overview
                                                                                                                                  • Momentum in rental growth is maintained in 2017
                                                                                                                                    • Industrial & logistics continues to represent one of the most attractive sectors for investors
                                                                                                                                      • Low levels of supply remain an issue in logistics
                                                                                                                                        • Figure 38: Industrial speculative development under construction, February 2013-January 2018
                                                                                                                                        • Figure 39: Capital value of the UK industrial property market, 2013-17
                                                                                                                                        • Figure 40: UK industrial property market, by region, 2017
                                                                                                                                        • Figure 41: Industrial property transactions in Great Britain, 2013-18
                                                                                                                                        • Figure 42: Industrial property transactions by investor type, year-to-date 2018
                                                                                                                                        • Figure 43: UK industrial floorspace and rental value, 2010-16
                                                                                                                                    • Other Commercial Sector

                                                                                                                                      • Key points
                                                                                                                                        • Overview
                                                                                                                                          • Investor appetite in UK hotels sector remains strong
                                                                                                                                            • Operators to focus on maintaining and enhancing margins
                                                                                                                                              • Budget and Four-Star hotels lead UK hotel development pipeline
                                                                                                                                                  • Figure 44: Active hotel development pipeline by grading, Q4 2017
                                                                                                                                                • Diverse leisure sector remains popular with investors, attracted by secure long-term income opportunities
                                                                                                                                                    • Figure 45: Capital value of the UK other commercial property market, 2013-17
                                                                                                                                                    • Figure 46: UK “other” commercial property market, by sector, 2017
                                                                                                                                                    • Figure 47: Property transactions in the leisure sector in Great Britain, 2013-18
                                                                                                                                                    • Figure 48: UK “other” commercial floorspace and rental value, 2010-16
                                                                                                                                                • Regional Analysis

                                                                                                                                                  • Key points
                                                                                                                                                    • Regional analysis of non-domestic properties in England & Wales
                                                                                                                                                      • Figure 49: Number of non-domestic rateable properties in England & Wales, by sector and region, as at 1 April 2017
                                                                                                                                                      • Figure 50: Rateable value of non-domestic properties in England & Wales, by sector and region, as at 1 April 2017
                                                                                                                                                    • Regional analysis of commercial property transactions
                                                                                                                                                      • Figure 51: Commercial property transactions in Great Britain, by region, 2013-17
                                                                                                                                                      • Figure 52: Regional importance in commercial property transactions, 2015-17
                                                                                                                                                  • Market Trends

                                                                                                                                                    • Key points
                                                                                                                                                      • Development of commercial property yields
                                                                                                                                                        • Figure 53: Prime market yields, by sector, 2015-18
                                                                                                                                                      • Rental price developments
                                                                                                                                                        • Figure 54: Prime office rents in the UK, December 2011- December 2017
                                                                                                                                                        • Figure 55: Prime retail rents in the UK, December 2011-December 2017
                                                                                                                                                        • Figure 56: Prime industrial rents in the UK, December 2011-December 2017
                                                                                                                                                      • Trends in average lease lengths
                                                                                                                                                          • Figure 57: Average length of leases, by tenant type, 2017
                                                                                                                                                        • Shift from owner-occupied towards rented commercial property
                                                                                                                                                          • Trends in commercial property lending
                                                                                                                                                            • The commercial property lending market has seen increased diversification and specialisation over recent years
                                                                                                                                                              • Figure 58: Outstanding debt secured by commercial property lender, by lender type, 2017
                                                                                                                                                            • New loan originations remained flat in 2017, with a stronger performance in the second half of the year
                                                                                                                                                                • Figure 59: Allocation of new loans originations, by lender-type, 2017
                                                                                                                                                              • Average loan-to-value ratios remain below 60%
                                                                                                                                                              • Industry Structure

                                                                                                                                                                • Key points
                                                                                                                                                                  • Overview
                                                                                                                                                                    • Figure 60: UK investor share and overseas investor share in each commercial property sector, 2016
                                                                                                                                                                    • Figure 61: Holdings in commercial property market, by investor type, 2017
                                                                                                                                                                  • Overseas investors
                                                                                                                                                                    • Figure 62: Overseas holdings in commercial property market, by investor type, 2016
                                                                                                                                                                  • REITs
                                                                                                                                                                    • Institutional investors
                                                                                                                                                                        • Figure 63: Holdings in buildings, property, land and new construction work by institutional groups, 2011-16
                                                                                                                                                                        • Figure 64: Net investment in buildings, property, land and new construction work by institutional groups, 2012-17
                                                                                                                                                                    • Company Profiles

                                                                                                                                                                      • British Land

                                                                                                                                                                          • Company strategy
                                                                                                                                                                            • British Land cuts exposure to speculative developments post Brexit vote
                                                                                                                                                                                • Figure 65: Financial analysis of British Land, 2013-17
                                                                                                                                                                            • Landsec/Land Securities

                                                                                                                                                                                • Company strategy
                                                                                                                                                                                    • Figure 66: Financial analysis of Land Securities, 2013-17
                                                                                                                                                                                • Great Portland Estates

                                                                                                                                                                                    • Company strategy
                                                                                                                                                                                        • Figure 67: Financial analysis of Great Portland Estates, 2013-17
                                                                                                                                                                                    • Hammerson

                                                                                                                                                                                        • Hammerson pulls back from Intu takeover
                                                                                                                                                                                          • Company strategy
                                                                                                                                                                                            • Figure 68: Financial analysis of Hammerson, 2013-17
                                                                                                                                                                                        • Intu Properties

                                                                                                                                                                                            • Company strategy
                                                                                                                                                                                              • Figure 69: Financial analysis of Intu Properties, 2013-17
                                                                                                                                                                                          • Derwent London

                                                                                                                                                                                              • Company strategy
                                                                                                                                                                                                  • Figure 70: Financial analysis of Derwent London, 2013-17
                                                                                                                                                                                              • A & J Mucklow Group

                                                                                                                                                                                                  • Company strategy
                                                                                                                                                                                                      • Figure 71: Financial analysis of A & J Mucklow Group, 2013-17
                                                                                                                                                                                                  • Hansteen Holdings

                                                                                                                                                                                                      • Company strategy
                                                                                                                                                                                                        • Figure 72: Financial analysis of Hansteen Holdings, 2013-17
                                                                                                                                                                                                    • Daejan Holdings

                                                                                                                                                                                                        • Company strategy
                                                                                                                                                                                                          • Figure 73: Financial analysis of Daejan Holdings, 2013-17
                                                                                                                                                                                                      • SEGRO

                                                                                                                                                                                                          • Company strategy
                                                                                                                                                                                                              • Figure 74: Financial analysis of Segro, 2013-17
                                                                                                                                                                                                          • Shaftesbury

                                                                                                                                                                                                              • Company strategy
                                                                                                                                                                                                                • Figure 75: Financial analysis of Shaftesbury, 2013-17
                                                                                                                                                                                                            • Workspace Group

                                                                                                                                                                                                                • Company strategy
                                                                                                                                                                                                                  • Figure 76: Financial analysis of Workspace Group, 2013-17
                                                                                                                                                                                                              • Bruntwood

                                                                                                                                                                                                                  • Company strategy
                                                                                                                                                                                                                      • Figure 77: Financial analysis of Bruntwood, 2013-17
                                                                                                                                                                                                                  • LondonMetric Property

                                                                                                                                                                                                                      • Company strategy
                                                                                                                                                                                                                        • Figure 78: Financial analysis of LondonMetric Property, 2013-17
                                                                                                                                                                                                                    • Grosvenor Group

                                                                                                                                                                                                                        • Company strategy and outlook
                                                                                                                                                                                                                            • Figure 79: Financial analysis of Grosvenor Group, 2013-17
                                                                                                                                                                                                                        • Market Forecast

                                                                                                                                                                                                                          • Key points
                                                                                                                                                                                                                            • Commercial and industrial construction output forecast
                                                                                                                                                                                                                              • Figure 80: Forecast private commercial construction output in Great Britain, 2018-22
                                                                                                                                                                                                                              • Figure 81: Forecast of private commercial construction in Great Britain, by sector, 2018-22
                                                                                                                                                                                                                              • Figure 82: Forecast private industrial construction output in Great Britain, 2018-22
                                                                                                                                                                                                                              • Figure 83: Forecast of private industrial new construction work in Great Britain, by sector 2018-22
                                                                                                                                                                                                                            • Commercial property market forecast
                                                                                                                                                                                                                              • Outlook for commercial property market remains cautiously optimistic despite concerns following Brexit vote
                                                                                                                                                                                                                                • Investor sentiment remains largely positive
                                                                                                                                                                                                                                  • Investor demand focused on secure income streams
                                                                                                                                                                                                                                    • Investor appetite for alternative assets remains strong
                                                                                                                                                                                                                                      • Core regional centres attract increased investor interest
                                                                                                                                                                                                                                        • Northern Power House and Midlands Engine to support regional growth
                                                                                                                                                                                                                                            • Figure 84: Forecast of UK commercial property market, 2018-22
                                                                                                                                                                                                                                            • Figure 85: Development of the UK commercial property capital value, 2013-17 (historic) and 2018-22 (forecast)
                                                                                                                                                                                                                                            • Figure 86: Projected investor share of UK commercial property market, 2018-22
                                                                                                                                                                                                                                          • Market forecast segmentation
                                                                                                                                                                                                                                            • Figure 87: Forecast segmentation of the UK commercial property market, 2018-22
                                                                                                                                                                                                                                            • Figure 88: Forecast segmentation of the UK commercial property market, 2018-22
                                                                                                                                                                                                                                        • Further Sources & Contacts

                                                                                                                                                                                                                                          • Trade associations and bodies
                                                                                                                                                                                                                                            • British Property Federation
                                                                                                                                                                                                                                              • The Association of Real Estate Funds
                                                                                                                                                                                                                                                • British Council for Offices
                                                                                                                                                                                                                                                  • The Commercial Real Estate Finance Council Europe
                                                                                                                                                                                                                                                    • The Investment Association
                                                                                                                                                                                                                                                      • The Investment Property Forum
                                                                                                                                                                                                                                                        • Trade exhibitions and conferences
                                                                                                                                                                                                                                                          • RICS Commercial Property Conference
                                                                                                                                                                                                                                                            • MIPIM UK 2018
                                                                                                                                                                                                                                                              • Trade magazines
                                                                                                                                                                                                                                                                • Estates Gazette
                                                                                                                                                                                                                                                                  • Property Magazine International
                                                                                                                                                                                                                                                                    • Property Week
                                                                                                                                                                                                                                                                      • Property Wire