Economics & Real Estate Q3 2015


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Economics & Real Estate Q3 2015 Research Construction and services drive growth, as manufacturing stumbles

Economic Highlights

– The final estimate for UK GDP in Q2 2015 confirmed growth at 0.7%, with annual

The service sector continued to expand at a healthy pace in Q2 2015, whilst a recovery was seen in construction following a weak first quarter.

growth for 2014 revised downwards 0.1 percentage points to 2.9%. Real household disposable income continued to expand at a healthy pace, rising 2.0% from Q1 2015.

– The rate of inflation (CPI) dropped to -0.1% in September, driven by the continued fall in the price of fuel. It remains unlikely a UK rate rise will happen before the end of the year.

– The latest employment statistics for the three months to August 2015 showed that

The UK Base Rate is not expected to increase until mid-2016.

employment rose by 140,000, with unemployment falling by 79,000 to a rate of 5.4%. Average weekly earnings including bonuses rose by 3.0% compared with a year earlier, whilst pay excluding bonuses was 2.8% higher. Sector Highlights •

Office – The headline figure for the UK Services PMI fell for the third month in succession, to 53.3, from August’s 55.6, indicating the weakest rate of growth since April 2013, albeit still showing signs of expansion. (Markit/CIPS).



Industrial – the UK Manufacturing PMI for September was 51.5, rounding off one of its weakest quarters during the past 2 years. That being said, the PMI has been above the 50.0 no-change mark for 30 months running. (Markit/CIPS).



Retail – the volume of retail sales in August increased 3.7% compared with August th 2014, marking the 29 consecutive month of year-on-year growth (ONS).



Construction – the UK Construction PMI for September saw a strong expansion to 59.9, up from 57.3 in August. Housebuilding remained the best performing category, signalling the strongest expansion for 12 months. (Markit/CIPS).



Residential – UK house prices rose 1.0% in Q3 2015 and increased 3.7% on an annual basis. Greater London saw prices rise 3.5% over the quarter, with annual growth accelerating to 10.6% (Nationwide HPI).



Debt – the Q3 2015 Credit Conditions Survey from the Bank of England reports that the availability of credit to the commercial real estate sector showed no improvement in Q3 2015, with no change expected in Q4 2015.

Struttandparker.com

The IMF is forecasting UK GDP growth of 2.5% this year and 2.2% in 2016.

Research Q3 2015

Economics & Real Estate

Investment Highlights 7,000

Q3 2015 saw investment volumes of £13.2bn, 22% below the same quarter last year.

6,000 5,000

Q4 2014 – Q3 2015 investment volumes hit £70.2bn compared to £62.5bn in Q4 2013 – Q3 2014.

£m

4,000 3,000 2,000 1,000 0 Office

Unit Shop

Source: Property Data as at 19/10/2015

Shop Ret Ware Industrial Centre Q3 2014 Q3 2015

Leisure Alt / Mixed

Prime Yields

Retail

Office

Industrial

Sector

Prime Yield*

Direction (next six months)

Distribution Centre (15 years)

5.00%

Tightening

Industrial Estate - Greater London

4.75%

Tightening

Industrial Estate – National

5.75%

Stable

City

4.00%

Stable

West End

3.50%

Stable

South East

5.00%

Stable

Provincial

5.00%

Stable

High Street - Regional Centre

4.25%

Stable

Out of Town (open A1)

4.50%

Stable

Shopping Centre

4.25%

Stable

Healthcare

4.75%

Stable

Yields have tightened on West End offices and Shopping Centres. We expect prime yields in most segments to remain stable over the next six months. However, some further tightening is anticipated in the Industrial sector.

The achievable yield for a freehold, prime investment; fully let and rack-rented to tenant/s of strong financial credibility on lease terms typical of prime property in that segment.

Contact us Mitchell Wall Research Analyst [email protected] Tel: +44 (0)20 7318 4678

Thomas Grounds Associate Partner [email protected] Tel: +44 (0)20 7318 4676

Copyright Strutt & Parker, 2015. All rights reserved. No part of this publication may be reproduced or transmitted in any form without prior written consent by Strutt & Parker. The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user, not as a recommendation of any particular approach. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors.

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