Colliers Property Snapshot May 2013

Economy

• PMI data continue to improve. Services increased from 52.4 to 52.9 while manufacturing and construction have almost reached expansionary levels at 49.8 and 49.4 respectively. GDP growth in Q2 13 looks positive. Inflation is stable with March CPI and RPI almost unchanged at 2.8% and 3.3% respectively. The MPC left policy on hold again in its May meeting as data remained generally stable and increasingly positive. The FTSE 100 reached 6600 for the first time since 2007; ten year gilts have risen slightly to near 1.9%; gold remains down at $1428 per ounce. According to FT reports, US hedge funds are ‘bullish’ on the Euro and believe the Europeans”... have done enough, we don’t see a collapse as a likely scenario in the near term anymore.” Cyclical forces may finally be impacting even though the data remains unconvincing.

Colliers view: UK economic fundamentals are stable, if non-expansionary and risk appetite appears to be improving. The data, though, remains inconclusive. 

Investment

• Transaction volumes fell from £3.3bn in March to £2.0bn in April, although 2013 is up 33% on 2012. Foreign pension funds and insurance companies made the top six April purchases accounting for £1.1bn, or half of the total. The largest was the CPPIB (Canada) / Hammerson JV purchase of a one third stake in Birmingham’s Bull Ring for £307m at 5.7% IY; this is followed by Oxford Properties’ purchase of 10 Paternoster Square (London Stock Exchange) for £225m at 5.3% IY. In the absence of debt, cash and forward purchases led the way in April.

• Retail Shops: The largest Welsh transaction in two years completed with NFU Mutual’s purchase of 63/77 Queen Street in Cardiff (Zara, Top Shop & River Island) for £45.5m at 5.7% IY. Several small deals completed at yields ranging from 6% in Canterbury to 7.2% in Chippenham, with a Blockbusters and Poundstretcher portfolio trading at 10.7% IY. Shopping Centres: Aside from the Bull Ring, the only significant deals included Mars PF’s purchase of Church Square in St Helens from receivers for £30m at 9% IY (lease options to 134 years) and Intu’s purchase of a development opportunity from Watford Borough Council. Retail Warehouses: The Crown Estate bought Coliseum Park in Ellesmere Port for £81m at 5.25% IY and St James’s Place PF bought Suffolk RP in Ipswich from Aberdeen AM for £18.75m at 7.1% IY. NFU Mutual also forward funded an Ashford John Lewis At Home for £7m. Supermarkets: Only three sizeable deals to report: a Tesco sale & leaseback in Stroud for £29.2m at 4.9% (20 years with RPI link) to Bishopsgate LT PFUT, a Sainsbury forward funding in Milton Keynes by Rockspring for £12.3m at 5.1% IY and an ABF M&S Simply Food forward funding in Reading for £9.2m at 4.3% IY.

Offices:

• City: Foreign funds are dominating; in addition to Oxford Properties’ purchase of 10 Paternoster Square, KWAP (Malaysia), Samsung (Korean), DEKA (German) and Sinarmas (Indonesia) all invested, including 88 Wood St. (£215m at 5.76% IY), 30 Crown Pl. (£142m), 95 Gresham St. (£85m) and 8-18 Great Queen St. (£84m) respectively. West End: Deals were linked to asset management including Evans Randall’s purchase of 15 Sackville St, with voids, for £60m; Wing Tai Properties (Singapore) buying 10 Brook St. (short lease near Crossrail) for £36.2m at 4.2% IY; and 25 Buckingham Gate (VP in 2014) for residential conversion. Regional: Short leases, high yields and an eye to replacement cost is a theme for secondary business park stock as evidenced by AEW, Henley Property and Oaktree purchases. Lower risk product is moving at around 6.5% to 7% IY with city centres seeing some activity.

• Industrial: Trading estates with multiple tenants continue to move, with Hartlebury Estate selling to Schroder UK for £46.2m at 9.5% IY (182 units with 85 tenants); also the Beaumont Estate in Banbury sold for £10.8m at 12.8% including development land. Quality distribution pricing is stable, with the Peterborough Mail Centre selling for £13m at 6.6%.

Colliers view: Foreign funds continue to buy London, although increasingly assets require management. Regional assets continue to attract attention, but are very price sensistive.