A Pause for Breath. Investment finally slowed in Q3: Are we reaching a tipping point or building up to another record Q4?

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1 A Pause for Breath Investment finally slowed in : Are we reaching a tipping point or building up to another record Q4? UK Commercial Property Investment Review 2015

2 CoStar Group Table of Contents Overview... 3 Major Events... 4 Key Transactions in Highlights from CoStar Data... 8 Office Sector Dominates in... 9 Attention Switches Back to Regions... Overseas Capital Spreading Beyond London Feature: Has the Big Six Become the Big Two? Yields at Lowest Level Since Are We Reaching A Tipping Point?...17 League Tables: Investment Agents League Tables: Single Branch Agents Data, Analytics & News Have Come Together Get in Touch with CoStar Every effort has been made to ensure the accuracy of the information held within this report. The publisher cannot accept liability for any loss/damage which may arise as a result of any error or omission of any data. Any data reproduced from this analysis must be accredited to CoStar. 2

3 Investment Review 2015 Overview Investment into UK CRE finally hit the pause button in 2015, ending three years of seemingly inexorable growth. Quarterly investment of 14.9bn was the weakest for two years and marked the first drop in Y-o-Y volumes since However, with investment totalling just under 50bn in the first three quarters of the year a 3% jump on the same period in 2014 and some major deals set to complete in the final quarter (amid a wealth of supply), it remains likely that 2015 s annual volume will top last year s record total. The slowdown in investment recorded across the UK masks differing performances by sector and region. Office remained the investors asset of choice, receiving a two-year high 51% share of all investment, while the amount of capital chasing hotels and student accommodation continues to rise. The retail sector was again the major laggard as investment fell 36% Y-o-Y to 3bn, level with Q2 as the weakest quarter for two years. Supermarkets and standard shops were the main culprits, although investment into retail warehouses bucked the trend to rise 67% Q-o-Q to 972m. On a regional basis, attention shifted northwards in, reversing London s dominance in the previous quarter. Capital flows into the North East, North West and Yorkshire & the Humber were all up sharply compared to their fiveyear averages, with non-london office investment hitting a post-crisis high of 2.7bn amid strong overseas interest. Manchester and Birmingham in particular remain very much in vogue. The average all property yield fell by a further 21 bps over the quarter to 6.66%, its lowest level since Q This was fuelled by further compression in London plus a sharp drop in industrial yields. Against this backdrop, good value opportunities are becoming harder for investors to find and there has been increasing evidence of investors moving up the risk curve in Looking ahead to 2016 this trend is likely to continue, with the emphasis shifting further towards income growth as the cycle evolves. Key Figures 14.9bn invested in UK commercial property in 2015 down % 1.1bn 6.66% average all property yield from 2014 poured into Big Six offices a post-crisis high 51% a drop of 21 bps Q-o-Q of all investment poured into the office sector a two-year high 1.8bn invested in the North of England 63% above the five-year quarterly average 3

4 CoStar Group Major Events January February March Investment Demand for Manchester assets continues as M&G Real Estate acquires 3 Hardman Square for 91.7m at a 5.79% yield. St Ermin's Hotel in Westminster is sold to US-based investor Sunrider International for 185m, almost triple the price paid by an Angelo Gordon & Co. consortium in 20. Mixed-use Project Laser portfolio is sold by Moorfield to Lone Star for 1bn. China's Gingko Tree buys a 50% stake in the Bentall Shopping Centre in Kingston upon Thames for 190m, 60m more than vendor Meyer Bergman paid for the stake in 20. Birmingham City Council puts 450,000 SF Grand Central Shopping Centre on the market for 250m. CPPIB buys Liberty Living portfolio for 1.1bn in a strong quarter for student accommodation investment. Leasing & Development New York-based WeWork launches 500,000 SF London office search as demand from serviced office providers heats up. Hermes Real Estate announces plans for a 122,000 SF office development in Edinburgh. If approved, office stock in Edinburgh is set to increase by over 1m SF in the next three years. Deutsche Bank announces plans to relocate a large proportion of its London offices, instructing agents to look for 400,000 SF outside the City. HSBC also announces intentions to relocate its UK personal and business bank from London to Birmingham. Battersea Power Station offices, totalling 1.25m SF, are brought to market. Retailer Dunelm leases a 525,000 SF shed in Stoke-on-Trent in one of 's biggest industrial lettings. Deloitte pre-lets entire 275,000 SF 1 New Street Square in London Midtown in the largest office deal of the quarter. + Economic Sentiment Real wage growth rises at its fastest rate in five years, with average earnings (including bonuses) up 2.1% Y-o-Y. UK unemployment rate falls to 5.6%, the lowest level since July CPI inflation rate drops to 0%, the lowest since estimates began in UK GDP growth slowed to 0.4% in, the weakest growth posted since Q ECB begins its long-awaited 1.1tn Quantitative Easing programme and upgrades its growth forecast for UK Sentiment Eurozone Sentiment 0 = Long term average Economic Sentiment Source: European Commission 4

5 Investment Review 2015 Major Events Q2 April May June Investment On behalf of AustralianSuper, TIAA Henderson Real Estate acquires a 25% stake in the King s Cross Central development. Brookfield and the Qatar Investment Authority complete their protracted acquisition of 0% of London s Canary Wharf Group through their 2.6bn acquisition of Songbird Estates. In Q2's largest single-asset trade, Taiwanese insurance firm Cathay Life buys the Walbrook Building in the City of London from Minerva for 575m, reflecting a 4.01% yield. Standard Life Investments forward-funds a John Lewis distribution warehouse in Magna Park in Milton Keynes for 85.7m, reflecting a yield of just 4.26%. A private Turkish Investor pays 20.1m for the EE Store at Oxford Street at a 2.16% yield, reflecting buoyant demand for London's prime retail assets. The iconic Madame Tussauds in London is sold to Taiwanese insurer Fubon Life for 332.5m. In a sign of robust Big Six office demand, Benson Elliot sells Templeback in Bristol for 58.5m, just eight months after acquiring the asset for around 42m. Leasing & Development Construction of 212,000 SF of new office space at Arena Central development in Birmingham is set to commence after the forward-purchase of the development by HSBC for their own occupation. Great Bear pre-lets 480,000 SF of industrial space at Markham Vale in the East Midlands. The scheme, led by developer Henry Boot and Derbyshire County Council, is one of the UK's biggest Enterprise Zone developments. Brookfield commences speculative construction on a 900,000 SF office tower at 0 Bishopsgate. The building will be the City's tallest skyscraper and works are expected to cost around 1bn. Completion due in Transport for London finalises a 265,000 SF office pre-let at the International Quarter in Stratford, east London, with occupation set for Autumn In the largest office deal of the quarter, Deutsche Bank subleases almost 390,000 SF of office space from Clifford Chance at Upper Bank Street in London's Canary Wharf. Plans are announced for Bristol's biggest ever office development. Construction of the 200,000 SF scheme, located in the Temple Meads Enterprise Quarter, will begin in early Economic Sentiment UK's CPI inflation rate turns negative for the first time since Bond prices and sterling rebounds following a decisive Conservative victory in the General Election, after pre-election nervousness in markets. 3.8 GfK/KPMG consumer confidence index reports strongest consumer sentiment level since early 2000s Real wages grow at their fastest rate since UK Sentiment Eurozone Sentiment 0 = Long term average Economic Sentiment Source: European Commission 5

6 CoStar Group Major Events July August September Investment UK property company Almacantar acquires One & Two Southbank for c. 550m, in both the biggest deal of and the second-largest ever property deal in London's South Bank.. The Alphabeta Building in the City of London is bought for 259.3m, marking the largest single-asset acquisition to date for Indonesian purchaser Sinar Mas Land. Chinese hotel group HK CTS Metropark Hotels acquires the entire Kew Green hotels portfolio for 400m. Deutsche Asset & Wealth Management provides 0m of forward funding for the completion of 2 St Peters Square in Manchester, which is part pre-let to accountancy firm EY. Singaporean REIT Mapletree makes a trio of regional acquisitions, buying 3 Hardman Street in Manchester, One Glass Wharf in Bristol and the IQ Building in Aberdeen for a combined 360m. Hines Global and Lone Star launch the sale of their Brindleyplace assets in Birmingham for 290m. Lone Star acquired a 40% stake in the buildings last year through the 1bn Project Laser deal. Leasing & Development + Economic Sentiment Abstract s 170,000 SF St Vincent Plaza delivers. Its completion follows 1 West Regent Street and CONNECT1NS, between them delivering 500,000 SF of much needed Grade A space to the Glasgow office market Global law firm Ashurst chooses M&G s Fruit & Wool Exchange in the City as its new HQ. The 275,000 SF pre-let is the largest Central London office deal in 2015, with occupation expected in spring Slowdown in Chinese economy sparks fears of a global recession. UK economic growth increases to 0.7% in Q2, up from 0.4% in. 4.0 Leonteq Securities (Europe) signs a deal to lease 15,912 SF on the 26th floor of The Shard at a rent in excess of 90/SF. Hammerson submits a proposal to Aberdeen City Council for a multi-million pound expansion of Union Square Shopping Centre Falling oil prices and the strong pound pull consumer price inflation down to 0% for the third time this year. 4.1 Building 7, the largest at Chiswick Park and one of London s largest speculative buildings, delivers 334,000 SF of office space, marking the completion of the 33-acre development Tritax Big Box REIT agrees to forward fund two distribution warehouses in West Yorkshire and Northamptonshire for TK Maxx and Howden Joinery Group respectively. Retail sales volumes increase 6.5% Y-o-Y, as real wage growth and falling prices boost consumer confidence. UK Sentiment Eurozone Sentiment 0 = Long term average Economic Sentiment Source: European Commission 6

7 Investment Review 2015 Key Transactions in & 2 Southbank Place, SE1 Kew Green Hotels Portfolio Offices in Aberdeen, Bristol & Manchester Price: c. 550m Size (sq ft): 570,000 Sector: Office Purchaser: Almacantar Vendor: Canary Wharf Group, Qatari Diar Price: 400m Size (sq ft): 5,179 rooms Sector: Hotel Purchaser: HK CTS Metropark Hotels Vendor: Goldman Sachs Price: c. 360m Size (sq ft): 737,500 Sector: Office Purchaser: Mapletree Vendor: Aerium Finance Yield: c. 5.70% Student Castle Portfolio Times Square, EC4 West One Shopping Centre & 75 Davies St, W1 Price: 330m Size (sq ft): 2,153 beds Sector: Student Accommodation Purchaser: CPPIB Vendor: Student Castle Price: 287.5m Size (sq ft): 395,000 Sector: Office Purchaser: Blackstone Group Vendor: Land Securities Initial Yield: 4.80% Price: 240m Size (sq ft): 90,000 Sector: Retail / Office Purchaser: Norges Bank IM Vendor: Orchard Street IM Initial Yield: c. 3.40% Colmore Plaza, Birmingham 27 Fleet Street, Birmingham Waitrose RDC, Matrix Park, Chorley Price: 138.3m Size (sq ft): 3,000 Sector: Office Purchaser: Ashby Capital Vendor: Carlyle Group Initial Yield: 6.09% Price: 69.5m Size (sq ft): 250,000 Sector: Office Purchaser: Legal & General Vendor: LaSalle Investment Management Initial Yield: 3.94% Price: 50.8m Size (sq ft): 427,000 Sector: Industrial Purchaser: Legal & General Vendor: BA Pension Fund Initial Yield: 4.18% 7

8 CoStar Group Highlights from CoStar Data 14.9bn invested in UK commercial property in 2015, down 11% from Q and a % drop from Overseas investment in the first three quarters of 2015 totalled 19.4bn, a 23% increase on the same period last year. Office sector dominated in with 7.6bn of investment, equal to a 51% share of total investment (a two-year high). Strongest quarter for non-london office investment in more than seven years at 2.7bn. Retail investment fell 36% Y-o-Y to 3bn, on par with Q2 as the weakest quarter for two years. Student accommodation and hotel investment increasingly popular, with - volumes up 118% and 49% respectively on the corresponding period in Average all property yield fell to 6.66%, a drop of 21 bps Q-o-Q and its lowest level since Q Average Central London office yields compressed to a new post-crisis low of 4.%, a drop of 66 bps Y-o-Y. Chart 1: UK Quarterly Investment Volume ( bn) Q2 Q4 8

9 Investment Review 2015 Office Sector Dominates in Office With 7.6bn transacted, was the strongest third quarter for office investment since Regional offices regained popularity in, accounting for 2.7bn (36%) of the total invested, representing the largest proportion since Q Office investment in the Big Six bounced back too, reaching 1.1bn, the strongest quarter for seven years, propelled by three 0m-plus trades in Manchester and Birmingham. Office investment across the UK accounted for more than half of investment (51%) for the first time in two years, led by Almacantar s forward purchase of One and Two Southbank Place in London for over 550m. Retail At 3bn, investment in the retail sector fell 36% Y-o-Y, level with Q2 as the weakest quarter since The struggling supermarket subsector managed to attract only 119m of investment, marking a post-crisis low, however retail parks outperformed to enjoy the third-highest quarterly investment volume since 2008 ( 972m). Shopping centre trades rose above 1bn for the first time this year, but year-to-date investment ( 2.7bn) is still 34% down on the same period in The standout deal was Norges Bank Investment Management s 240m purchase of the West One Shopping Centre on Oxford Street. Industrial Against the backdrop of a strong Q2, investment in industrial property fell 53% Q-o-Q and 34% Y-o-Y to 1.1bn, partly due to an absence of high-value nationwide portfolio trades. The North West was the strongest performing region, attracting 192m (18%) of investment, helped by Legal & General s 51m acquisition of a Waitrose distribution centre at Matrix Park, the second largest industrial deal of the quarter. Investor demand for distribution assets let to strong covenants continued in, with several sub-5% yields recorded and more forward funding deals agreed. Chart 2: UK Quarterly Investment by Sector ( bn) Office Retail Industrial Mixed Other Office Retail Industrial Mixed Other Chart 3: 2015 UK Investment by Sector 16% 51% 6% 7% 20% Office Retail Industrial Mixed Other 9

10 CoStar Group Attention Switches Back to Regions Chart 4: 2015 Investment Volume by Region (Total Value & Breakdown by Sector) Whilst London took centre stage in Q2, the regions stole the show in. It was the best quarter for office investment outside London since the crisis, rising 56% Q-o-Q to 2.7bn, led by big ticket sales in Manchester and Birmingham. 30% 39% 5% 26% The North East investment renaissance seen last quarter continued with a 70% increase on its five-year average, largely driven by office sales such as Rainton House, which sold to a US REIT for 32.5m. 911m North West 166m Wales 45% 11% 2% 19% 13% 48% 20% 687m Scotland 61% 46% 41% 41% 20% 28% 3% 49% 13% 11% 7% ` 69% 15% 11% 42% 32% 696m West Midlands 349m South West 4% 43% 234m North East 2% 6% 54% % 15% 17% 38% 70% 1% % 28% 608m Yorkshire & H. 61% 58% 62% 1% 21% 9% 11% 1,298m South East 5% 307m East Midlands 1% Elsewhere, the North West and Yorkshire & The Humber experienced strong quarters, with investment jumping 61% and 62%, respectively, compared to their fiveyear averages. 3% 9% 67% 79% Subdued industrial sales dented investment volumes in the South East, which recorded only a marginal 5% uplift on its five-year average. 672m East of England 55% 6,115m London 8% Office Retail Industrial Mixed/Other Coloured arrows and percentages indicate % above/below five-year average Chart 5: Quarterly Investment Volume ( bn) London & South East Other Regions Multi-Region Portfolio % Other Regions 60% 50% 40% 30% 20% % 0%

11 Investment Review 2015 Overseas Capital Spreading Beyond London Overseas investors poured a further 5.6bn into UK CRE in 2015, taking the year-to-date total to 19.4bn, up 23% on the same period in Although London (56%) and multi-region portfolios (30%) accounted for the lion s share of this volume, was notable for a sharp rise in investment in the regions. More than 1.7bn of foreign capital found a home in regional assets during the quarter, a near threefold increase from Q2 s 671m and the highest total for more than seven years. Alongside the more established foreign investors such as BlackRock, Harbert and Deutsche Bank all of which bought large regional assets in perhaps the most interesting deal outside London was Singaporean REIT Mapletree s acquisition of three office buildings in Manchester, Bristol and Aberdeen respectively for a combined 360m. Elsewhere, Mauritian-based New Frontier Properties followed up its 189m purchase of two shopping centres in Middlesbrough and Burton upon Trent in Q2 with another regional shopping centre acquisition in, snapping up the Houndshill Shopping Centre in Blackpool for 5m. On a country-by-country basis, the US was once again the leading source of foreign capital into UK CRE in ( 1.6bn), although American investment has fallen away sharply in the last two quarters. Meanwhile Chinese investment trebled to 797m despite or perhaps because of concerns of economic slowdown at home. Other interesting trends so far in 2015 include a sharp rise in investment from Singapore in contrast to neighbouring Malaysia, which has become a net seller and the changing landscape of inflows from Asia, with Far East investment already up 25% from 2014 and Middle Eastern capital inflows down 79%. Top Foreign Investor by Country in 2015 Country Investment ( m) 1 USA 1,578 2 China Singapore United Arab Emirates Canada Norway Hong Kong 178 5% 14% 33% 21% 17% 8% 4% Chart 6: 2015 UK Investment by Purchaser Region 2% % 2% 8% 2% 47% 69% UK N. America W. Europe Asia 58% Rest of World Chart 7: 2015 London Investment by Purchaser Region UK N. America W. Europe Asia Rest of World Chart 8: 2015 UK excl. London Investment by Purchaser Region UK N. America W. Europe Asia Rest of World Note: Figures in charts 7 & 8 exclude multi-region portfolios 11

12 CoStar Group Has the Big Six Become the Big Two? Investment spreading to the regions was a key feature in making 2014 a record-breaking year, and despite London offices dominating in Q2 2015, the regional investment hunt has continued this year. At 1.1bn transacted, the Big Six cities (Birmingham, Bristol, Edinburgh, Glasgow, Manchester and Leeds) had their best quarter for office investment in more than seven years in 2015, with Birmingham and Manchester firmly leading the way. While the overall market may have paused for breath in, for these two cities the bull run is still well and truly on, as Birmingham and Manchester offices recorded their best and second-best quarters for investment since 2007 respectively. Indeed, since 2014 the two cities combined have accounted for 60% of office investment across the Big Six, up from 39% in 2013 and 36% in So what are the pull factors drawing capital to these two regional cities in particular? Big infrastructure improvements are attracting investors While Manchester and Birmingham have traditionally competed to be considered Britain s Second City, the battle has segued towards strategic positioning as the best places to do business outside of London, or even instead of London. Both cities have embarked on ambitious infrastructure projects in recent years. In Manchester, this has included tramline and airport expansions, as well as being the nucleus of the Government s Northern Powerhouse concept. Meanwhile Birmingham s Big City plan has also proved rewarding, with the refurbishment of New Street Station drawing in additional passengers, the flashy new Grand Central shopping centre attracting high-end retailers (and currently inciting a bidding war among investors), and the extension of the tramline underway. Furthermore, the forthcoming rail improvements through HS2 will create jobs and cut journey times to London. There s not been such a buzz Chart 9: Big Six Office Investment ( bn) Q4 09 Q2 Q4 11 Q Q Q Q Q Q Q Q Q Birmingham Manchester Edinburgh Glasgow Leeds Bristol 12

13 Investment Review 2015 Has the Big Six Become the Big Two? in Brum since the factories drummed into life during the industrial golden age. Dynamic occupier markets While investors may not yet be tired of London, some occupiers and their employees are showing signs of rising-rent fatigue and are exploring options outside the capital, and nowhere more so than Manchester and Birmingham, thanks to lower costs than London and superior connectivity over other regional cities. Deutsche Bank and HSBC are just two financial firms that have chosen Birmingham for a regional HQ, and the decision to base the HS2 HQ in Birmingham will attract occupiers looking to cash in on the supply chain in the coming years. Indeed, the recent turnaround in Birmingham s fortunes has also spurred developers to dust off plans for the mammoth, recession-stalled development at Paradise Circus touted as the most important city centre development outside of London which will change the face of the surrounding public realm through improved connectivity and increased business, retail, and leisure offerings. As the Capital of the North, Manchester boasts both the fastest-growing GDP of the Big Six and one of the most diverse industry bases in the UK, while the north shoring trend of businesses setting up in the city saw net absorption hit record-breaking levels in International law firm Freshfields, as well as the BBC and RBS, have all chosen to expand in Manchester over London. In addition to healthy demand, both cities have also been attractive to investors due to the lack of supply delivered since the crisis, pushing Grade A supply to low levels and driving rental growth. Indeed, prime rents in Birmingham and Manchester have increased 12% and 13% respectively since the recovery, the highest prime rental growth of the Big Six. Chart : Grade A (4 & 5 Star) Office Vacancy Rates Vacancy has fallen faster in Birmingham and Manchester than in the other Big Six cities since

14 CoStar Group Has the Big Six Become the Big Two? Pricing has moved, but investors are still coming So who s been investing? UK institutions have been particularly active in the Big Six since the recovery, but nowhere more so than in Manchester. Since 2013, more than half of UK institutional investment in Big Six offices has poured into the city. M&G s acquisition of RBS s Spinningfield offices for 318m at a sub-5% yield unleashed a wave of investment and set the tone for the uptick in regional office pricing in Continuing the trend, the biggest office transaction outside of London and the South East this year to date was Legal & General s 251m purchase of a 50% stake in Salford s MediaCityUK in. UK institutions are also ploughing into Birmingham. Legal & General recently acquired the Mitchells & Butlers HQ for a 3.48% yield thought to be the lowest yield for an office asset ever paid in the city and 1 Colmore Square for 87.4m, again at an eye-wateringly low yield of 4.04%. Despite this upward movement in pricing for Grade A assets, prime yields in Birmingham and Manchester still remain 30 bps and 60 bps above their 2007 lows respectively, in contrast to Central London, where pricing has increased so much that prime yields are now well below pre-recession levels. Overseas investors are also paying attention Manchester offices accounted for more than 40% of all foreign investment into Big Six offices in , with overseas investors confident enough in the city s prospects to gamble on riskier acquisitions. Firms like Deutsche Asset Management and Credit Suisse have funded the construction of 2 St Peter s Square and the refurbishment of Overseas House respectively, while American fund AEW Capital Management paid 27% more than the asking price for 1 Barbirolli Square, with plans to refurbish the building when it becomes vacant in Similarly, foreign investors are capitalising on Birmingham s growing prosperity through value-add acquisitions: Anglo Scandinavian Estates, Ardstone Capital, and a joint venture between Patrizia Immobilien and Oaktree Capital Management have all recently bought refurbishment projects in the city. U.S. funds Chart 11: Foreign Investment - Office ( bn) Birmingham Manchester Glasgow Bristol Edinburgh Leeds (-) 14

15 Investment Review 2015 Has the Big Six Become the Big Two? such as Ares and Starwood have also been underbidders on Colmore Plaza and 1 Colmore Square, with the latter now looking at assets on the market in Brindleyplace. Additionally, The Cube has been under offer twice this year to foreign investors, including one from Taiwan, before the owner Tristan Capital decided to withdraw it from the market in favour of capitalising on expectations of increased pricing next year. There s a growing consensus that UK CRE pricing is nearing the top of the market, but opportunities still exist in the regions, and Manchester and Birmingham are leading the way. In London, there are signs that the office market in particular is frothing over, with investors recently walking away from deals at Broadgate Quarter and Heron Tower, and prime and average office yields in the City lower than ever. However, average yields for Manchester and Birmingham are still 70bps and 130bps above their 2007 levels respectively. The biggest regional cities may collectively be known as the Big Six, but recent investment volumes show there are two clear leaders emerging. The combination of ambitious infrastructure projects, dynamic occupier fundamentals, and faster rental growth than other regional cities has caused Birmingham and Manchester to pull away from the pack and become real alternatives to London in the eyes of investors from both home and abroad. WHY IT S ALL HAPPENING FOR BIRMINGHAM Key industry figureheads explain why Birmingham is experiencing a complete renaissance. WATCH THE EXCLUSIVE INTERVIEW HERE youtube.com/costaruk Chart 12: Average Office Yields 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% London City Birmingham Manchester 15

16 CoStar Group Yields at Lowest Level since 2008 Chart 13: Average Initial Yield by Sector (Unweighted) Chart 14: Average Yield in London vs. Rest of UK Initial Yield (%) Initial Yield (%) Basis Point Spread All Property Office Retail Industrial Difference (basis points) London UK ex. London The average all property yield fell by a further 21 bps Q-o-Q in 2015 to 6.66%, its lowest level since Q Industrial yields compressed sharply, dropping 65 bps over the quarter to a post-crisis low of 6.87%. Retail was the only sector to record an expansion, with average yields rising 11 bps to 6.65%. Despite the improving consumer environment, this reflects subdued trading amid latent concerns over rental growth outside of London. The yield gap between London and the rest of the UK widened again in 2015, to 308 bps, driven by further compression in London. Central London office yields dipped to 4.% in, reflecting a drop of 66 bps Y-o-Y. The number of office yields recorded at 4% or below more than doubled in 2015 when compared with Although further yield compression is likely in the final quarter of 2015, the top of the market is near in many markets and sectors. The emphasis will therefore move towards income growth as the main driver of returns in Number of Deals per Yield Bracket Chart 15: 2015 Initial Yield Histogram Chart 16: All Property Yield Heat Map Initial Yield (%) Office Retail Industrial 16 Initial Yield (%) Note: The hotter the colour the more frequent the transactions at that yield Note: Yield analysis is based on all transactions above 1m

17 Investment Review 2015 Are We Reaching A Tipping Point? Written by Paul Norman Editor, CoStar News Merry Hill Shopping Centre, Brierley Hill We can now safely say that 2015 is going to be another rip-roaring year for investment in UK commercial property. A number of sizeable assets are set to trade in the final quarter, including Queensland Investment Corporation s 50% circa 500m stake in the Merry Hill Shopping Centre, Blackstone s circa 415m acquisition of the City s Broadgate Quarter, and the GAW Capital-led acquisition of Google s Victoria home for around 500m, which should drive investment somewhere near to if not above last year s record-breaking figure. Price: c. 500m (50% stake) Size (sq ft): 1,400,000 Status On the Market Vendor: QIC The reasons behind the ongoing boom time for investment have been well reported, not least the stability of property in comparison with real volatility in other investment markets. However, the figures show us a clear shift. 3-6 & 9 Brindleyplace, Birmingham Price: c. 290m Size (sq ft): 525,000 Status On the Market Vendor: Hines & Lone Star Devonshire Square, London With London looking increasingly overpriced and difficult to compete in, the wave of cash eyeing property continues to flow into the regions and alternative assets, as return and capital preservation is sought. The big winners in have been regional offices and alternative asset classes. For example, 3.2bn has been invested in student accommodation so far this year, more than double the same period in 2014 and the first time on record that the value of UK student housing acquisitions has surpassed that of the US. It was the biggest quarter for non-london offices since the crisis too rising 56% Q-o-Q to 2.7bn and the recent spate of major UK institutional and global (notably Chinese) investment in UK-wide urban regeneration and infrastructure projects has to be encouraging for the UK s property markets as well as its wider economic prospects. Price: c. 550m Size (sq ft): 626,000 Status On the Market Vendor: Blackstone But it is not all good news. Quarterly investment was at its weakest level for two years in, with trading in the retail sector particularly subdued. All manner of commentators are now predicting that we have found the top of the market. The truth is likely to be more complex than that: some markets will continue to offer great value and opportunity for capital returns in 2016, while others have already reached a peak. It is during this period of the cycle that those who make investment decisions really earn their stripes. 17

18 CoStar Group League Tables: Investment Agents It s been another strong quarter for investment advisors at the principal houses, with the Big Two swapping places at the top for sales as both JLL and CBRE advised on in excess of 2.2bn of deals while CBRE retained its top spot in acquisitions. Intriguingly, in what will be the last quarter of performance from a separate DTZ and Cushman & Wakefield, the combined business would have chalked up top spot for acquisitions. There is no doubt the merger of the two agency giants is going to change the make-up of our tables going forward. N.B. DTZ and Cushman & Wakefield merged on 1st September. DTZ s figures in the tables below reflect deals completed by the business in July and August. Any deals completed in September are included for Cushman & Wakefield. Investment Agents - Vendor Investment Agents - Acquisition Rank 2015 (Q2 2015) Vendor Agent Value m Rank 2015 (Q2 2015) Acquisition Agent Value m 1 (2) JLL 2,355 2 (1) CBRE 2,234 3 (4) Knight Frank 1,428 4 (11) Eastdil Secured 1,032 5 (3) Savills (5) Colliers International (9) Cushman & Wakefield (6) GM Real Estate (15) Strutt & Parker 527 (-) Allsop (7) DTZ (-) Montagu Evans (-) Harvey Spack Field (-) Levy Real Estate (8) Michael Elliott (1) CBRE 1,213 2 (3) JLL (11) DTZ (2) Savills (-) Cushman & Wakefield (4) Strutt & Parker (-) BNP Paribas Real Estate UK (-) Morgan Williams (-) Capital Real Estate Partners 328 (5) Knight Frank (7) Colliers International (13) Bilfinger GVA (9) GM Real Estate (6) Michael Elliott (-) Allsop % of 2015 s top 15 Acquisition agents* subscribe to Propex. 93% of 2015 s top 15 Vendor agents* subscribe to Propex. *Includes single and multi-branch agencies To find out more about CoStar Propex visit 18

19 Investment Review 2015 League Tables: Single Branch Agents The single branch tables again reflect some remarkable work among the smaller teams. Special mention must go to Eastdil Secured, Harvey Spack Field and Levy Real Estate in sales, while Morgan Williams and Capital Real Estate Partners led the way for acquisitions. GM Real Estate and Michael Elliott once again stood out on both sides of the deal spectrum. Eastdil s top placing for sales relied on the spread of its reach, with key deals including the sales of London s 99 Bishopsgate and Manchester s 3 Hardman Street. Morgan Williams outstanding run was aided by its work advising on the acquisition of a 50% interest in Thorpe Park Business Park, Leeds for 162m and the Arla Dairy site in Ruislip for 61.5m. Single Branch Agents - Vendor Single Branch Agents - Acquisition Rank 2015 (Q2 2015) Vendor Agent Value m Rank 2015 (Q2 2015) Acquisition Agent Value m 1 (3) Eastdil Secured 1,032 2 (1) GM Real Estate (7) Harvey Spack Field (-) Levy Real Estate (2) Michael Elliott (9) Tudor Toone () Wilkinson Williams (-) Whitaker Horton 0 9 (11) Morgan Williams 93 (-) GN (1) Hanover Green (-) James Andrew International (-) Gryphon Property Partners (-) Griffiths Eccles (-) Coady Supple 43 1 (9) Morgan Williams (-) Capital Real Estate Partners (3) GM Real Estate (1) Michael Elliott (-) Kieran D. Cotter & Co (1) Finn & Co (2) Dowley Turner Real Estate (5) Tudor Toone (-) Goldenberg Real Estate 116 (-) Gilbert Evans 113 =11 (8) Coady Supple 5 =11 (6) Lunson Mitchenall 5 13 (-) GS Capital Advisors (-) Bray Fox Smith (-) Franck-Steier Price 50 INVESTMENT IN 0 SECONDS Watch industry leaders from across the UK discuss the recent investment trends WATCH THE EXCLUSIVE INTERVIEW HERE 19 youtube.com/costaruk

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21 Investment Review 2015 Data, Analytics and News Have Come Together Access a unique combination of Data, Analytics and News, offering the most comprehensive macro-to-micro explanation of the latest trends in the UK property market. CoStar s proprietary data, which underpins this report, is sourced directly from UK property agents, investors and other involved parties to accurately reflect the transactional market in real time. Typically 850+ investment deals are recorded each quarter, more than any other data source. The Analytics team then overlays top-down analysis of the UK market on this unique dataset, breaking down investment trends by sector, sub-sector, geography, lot size, investor type, and yield. Finally the News team adds perspective to the analysis by providing timely industry and market updates. Paul Norman Editor, CoStar News T: E: pnorman@costar.co.uk Mark Stansfield Senior Market Economist T: E: mstansfield@costar.co.uk Iain Smyth Investment Research Associate T: E: ismyth@costar.co.uk Marianne Fitzpatrick Market Economist T: E: mfitzpatrick@costar.co.uk Chris Johns Investment Research Associate T: E: cjohns@costar.co.uk Grant Lonsdale Market Economist T: E: glonsdale@costar.co.uk 21

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23 Investment Review 2015 Get in Touch with CoStar CoStar Group (Nasdaq: CSGP) is the leading provider of commercial real estate information, analytic and marketing services. Founded in 1987, CoStar conducts expansive on-going research to produce and maintain the largest and most comprehensive database of commercial real estate information. Our suite of online services enables clients to analyse, interpret and gain unmatched insight on commercial property values, market conditions and current availabilities. CoStar maintains offices throughout the U.S. and in Europe with a staff of approximately 2,000 worldwide, including the industry s largest professional research organisation. CoStar Suite sales@costar.co.uk London Glasgow Manchester Interested in sponsoring future publications? Contact Richard Goff on sales@costar.co.uk 23

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