2023-09-05-莱坊-Investment_Yield_Guide_September_2023_4页_451kb

Prime Yield Guide – September 2023 Summary

Core Content

This document provides an overview of the current prime yield trends across various commercial real estate sectors in the UK as of September 2023. It includes data on yields for different property types and locations, as well as market sentiment and leading indicators affecting the sector.

Sector Overview

Offices

Main Points:

• Office yields in the City Prime segment have remained stable at 4.00%–5.25%, with a weaker sentiment.
• West End Prime Core yields have increased to 4.00%, with a stable sentiment.
• Non-core West End yields have increased to 4.75%, but sentiment is weaker.
• Major Regional Cities show a steady increase in yields, with a negative market sentiment.
• Life Sciences yields in Oxford and Cambridge have remained stable.

Warehouse & Industrial

Main Points:

• Warehouse and industrial yields have generally increased, but sentiment is weaker.
• Secondary Distribution yields have risen to 5.75%, with a weaker sentiment.
• South East Estates and Good Modern Rest of UK Estates show stable yields.

Specialist Sectors

Main Points:

• High Street Retail yields have increased across all sub-sectors, but sentiment is weaker.
• Shopping Centres show a consistent rise in yields, with a weaker sentiment.
• Out of Town Retail yields have generally increased, with a weaker sentiment.
• Leisure yields have increased, with a negative market sentiment.

Leading Indicators

• Net Lending to UK CRE: Net lending has been positive for five consecutive months, suggesting increased refinancing activity. In 2018, £50 billion of CRE debt was originated.
• Property Transactions: Q2 2023 saw the lowest number of UK CRE standing property transactions in over 10 years, down by 37% from the long-term average. This indicates that firms are borrowing for purposes other than purchase, such as refinancing.
• Political Tensions: Political tensions are rising ahead of the 2024 elections in the US and UK. The Conservative party may face two by-elections. Betting odds suggest a 67% likelihood of a Labour majority, down from 69% in July, while the probability of a no majority outcome increased to 27%.
• Labour Government Impact: If Labour forms a government, it may have a relatively positive impact on UK CRE, based on historical performance (e.g., +6.7% inflation-adjusted returns between 1997 and 2010).
• ESG and AI: Generative AI is expected to support ESG goals in real estate, particularly in building management systems and identifying inefficiencies.
• VC Funding: High levels of VC and UK Government funding have led to a 144% increase in investment in Q2 2023, with continued growth in the Golden Triangle.

Debt Market Highlights

• SONIA Rate: Increased from 1.691% in September 2022 to 5.185% in September 2023.
• Bank of England Base Rate: Rose from 2.25% in September 2022 to 5.25% in September 2023.
• 5-year Swap Rates: Increased from 3.770% to 5.032%.
• 10-year Gilts Redemption Yield: Rose from 2.92% to 4.42%.

Key Research

• Knight Frank's Q2 2023 UK CRE Quarterly Review highlights the impact of the global and UK economy on commercial real estate sectors.

Knight Frank Expertise

• Knight Frank has expertise in:
  • Waste and Energy
  • Infrastructure
  • Garden Centres
  • Film Studios
  • Serviced Offices
  • Data Centres
  • Life Sciences
  • Income Strips
  • Ground Rents
  • Trading assets
  • Expert Witness
  • IPOs

Key Contacts

• Emily Miller – Partner, Valuation & Advisory, Head of UK Fund

  • Email: Emily.Miller@KnightFrank.com
  • Phone: +44 20 7861 1483

• Simon Gillespie – Partner, Valuation & Advisory, Head of Central London

  • Email: Simon.Gillespie@KnightFrank.com
  • Phone: +44 20 7861 1292

• Matthew Dichler – Partner, Valuation & Advisory, UK Fund Valuations

  • Email: Matthew.Dichler@KnightFrank.com
  • Phone: +44 20 7861 5224

• Jeremy Tham – Partner, Valuation & Advisory, Head of Real Estate

  • Email: Jeremy.Tham@KnightFrank.com
  • Phone: +442078611769

• Chris Galloway – Partner, Valuation & Advisory, Head of Business Development UK Fund Valuations

  • Email: Chris.Galloway@KnightFrank.com
  • Phone: +44 20 7861 1297

• Will Matthews – Partner, Research, Head of Commercial

  • Email: William.Matthews@KnightFrank.com
  • Phone: +44 20 3909 6842

Knight Frank Research Reports are available at knightfrank.com/research.