Valued Insights | The Business Park Blog Part 2 | Key Themes

Valued Insights | The Business Park Blog Part 2 | Key Themes

Virginia Woodger

Virginia Woodger

Associate Director

t: +44 207 1822 680

e: virginia.woodger@cbre.com

 

David Ingham

David Ingham

Director

t: +44 207 1822 878

e: david.ingham@cbre.com

 

In the coming months on Valued Insights we are going to touch on the UK Business Park Sector, its current investment volumes, who the investors are and what’s driving them.  While examining the current Business Park market as an investment vehicle, we are also going to consider the feasibility of the Business Park as a workplace of the future and if they will appeal to Millennial workers and beyond.

This blog series is by no means exhaustive, but it will hopefully provide a thoughtful precis and unearth some themes for ongoing discussion across the sector.

Part 2: The Business Park Series: The Investors.

In the first part of our series, we established that over 2017, total property investment volumes reached £65.48 bn for the UK, while £32.27 bn, or just under 50%, originated from overseas investors.

If we turn our attention purely to Business Parks, the numbers tell a very similar story, albeit on a smaller scale. Total property investment volume in the Business Park sector, reached £3.25 bn, while £1.814 bn (55.8%) was attributed to overseas investors.

Looking a little closer at the £1.814 bn attributed to overseas investors, the top two groups were the Far East (44.2%) and the USA (27%).

Who are these investors –  and what is attracting them?

Notable Transactions in 2017

  • In August last year, TPG Real Estate (US) acquired Arlington Properties and its UK business parks from Goodman Group and Legal & General, in the region of £450m. The portfolio comprised 250 acres of consented land and 57 buildings, occupied by the likes of Emirates Airlines, Centrica, Harley Davidson, Mondelēz, and Harley Davidson. At the time of the transaction it was considered that it represented a high-quality portfolio with a convincing opportunity for enhancement through asset management and development.
  • In September last year –Singapore based Frasers Property International acquired a portfolio of 4 UK Business Parks (Winnersh Triangle, Chineham Park, Watchmoor Park and Hillington Park) from Oaktree Capital for £686 million, and agreed under a separate deal to acquire the Maxis Business Park in Bracknell for £57 million – subject to conditions. At the time of the sale Frasers justified the purchase of the parks as forming part of their overseas growth strategy, harnessing the synergistic benefits for their other holdings. They also noted the growth prospects of these properties, with rental income underpinned by long term leases to diverse and reputable tenants with long WAULTS. The size, depth and transparency of the UK property market was also a key factor.

Diversification is key. For these buyers, these transactions complement their wider strategies. Simply put, foreign buyers are motivated by more than just a paucity of investment grade office stock in Central London. While it is without a doubt that Business Parks are competitively priced relative to Central London and the UK’s Regional office centres, they offer scope for rental growth, aggressive asset management and substantial lot sizes. According to CBRE Research “High quality, well located buildings let to a strong tenant will outperform the rest of the market in 2018. Buildings with a lot size of circa £100 million are expected to see the most interest, especially from private investors’. This brings us to our third instalment – the future.  In Part 3 of this blog we explore the fact that not all business parks are created equal, and examine what qualities they need to embody in order to become futureproofed workplaces.

Let us know your feedback

The National team has unparalleled experience of valuing business parks, building up specific market insight into the key parks across the UK. If you are interested in more details of this report and our Business Park series, please contact David Ingham, Director of CBRE National Valuation, or Virginia Woodger, Associate Director of CBRE National Valuation.

Contact Us
Valued Insights | The Business Park Blog | Key Themes

Valued Insights | The Business Park Blog | Key Themes

Virginia Woodger

Virginia Woodger

Associate Director

t: +44 207 1822 680

e: virginia.woodger@cbre.com

 

David Ingham

David Ingham

Director

t: +44 207 1822 878

e: david.ingham@cbre.com

 

In the coming months we are going to touch on the UK Business Park sector, its current investment volumes, who the investors are and what’s driving them. While examining the current Business Park market as an investment vehicle, we are also going to consider the feasibility of the Business Park as a workplace of the future and if they will appeal to Millennial workers and beyond.

This blog series is by no means exhaustive, but it will hopefully provide a thoughtful precis and unearth some themes for ongoing discussion across the sector.

Part 1: The Business Park Series: The UK as a destination for capital, the volumes and the drivers.

Let’s first consider the numbers on a macro level. In 2017, total UK property investment volumes hit £65.48 bn, demonstrating a resilience in investor demand despite the fallout of the Brexit referendum result. Notwithstanding the prevailing uncertainty, the bigger picture is that the UK continues to represent a mature economy, and a stable, transparent destination for funds. It has a sound legal and regulatory environment, and a competitive tax regime. Opportunities created by a weaker pound have also been a major catalyst.

Returning to our £65.48 bn for total UK property investment volume, £32.27 bn, or just under 50% of the aggregate, originated from overseas investors while £13.25 bn of this volume, or 41% originated from investors from the Far East.

£16.24 billion, or almost a quarter of 2017’s investment volume found a home in the Central London Office Sector – enduringly popular and characterised by liquidity, long income streams, prominent assets and high-quality occupiers. If we examine this £16.24 billion a little closer, once again, the overseas investor dominates, with £12.66 billion, or just under 78% originating from overseas buyers. Of that £12.66 billion, just under 55% originated from the Far East.

But where does this leave us and what is the emerging theme? In 2017, Overseas investors (and in particular the Far East), as a group, dominated the statistics both in terms of funds deployed at a UK wide level, and funds targeted at Central London offices. By the end of Q3 2017, there was a mismatch between the £39 bn of equity that was targeting central London offices, versus the £7 to £8 bn of stock that was actually available, so opportunities were sought elsewhere. This is set to continue into 2018, where investment activity in the London markets is expected to be dominated by Asian Investors. According to CBRE Research “More new entrants from Hong Kong, Malaysia and Singapore will enter the market to build a portfolio of stock. Other likely sources of capital include German Property Funds, attracted to London ‘s pricing relative to other cities elsewhere in Western Europe.”

If we subtract Central London Office investment Volumes of £16.25 bn from the overall investment volume of £65.48 bn, this means that £49.23 bn went to other sectors, including Regional Offices outside of Central London, and Business Parks. Investors will continue to seek out good quality, well located assets. Business Parks represent an attractive yield differential to Central London, and embody many of the same qualities that investors have sought. Total property investment volume in the Business Park sector, reached £3.25 bn, while £1.814 bn (55.8%) was attributed to overseas investors.

In Part 2 of this blog series we will examine what is attracting Business Park investors, both domestic and foreign, and what is unique about the sector that makes it appealing.

Let us know your feedback

The National team has unparalleled experience of valuing business parks, building up specific market insight into the key parks across the UK. If you are interested in more details of this report and our Business Park series, please contact David Ingham, Director of CBRE National Valuation, or Virginia Woodger, Associate Director of CBRE National Valuation.

Contact Us