UK Monthly Commentary Valuation Advisory June 2018
UK Commentary Finance US Federal Reserve rate at 1.75%. UK Base Rate at 0.50%, further increases expected. 5-Year Swap Rate 1.25% (Beginning May 1.33%). 10-Year Rate 1.50% (Beginning May 1.55%). LIBOR at 0.61. Bank lending, 65% LTV maximum, margins range from 150 basis points plus, depending on asset, borrower and LTV, expanding group of lenders and range of loan terms including development finance. Mezzanine funding available. European Banking Market Q.E. support continuing, tapering in 2018. Economic view The FTSE 100 index at 7,678 up from 7,520 at the beginning of May. This compares to 7,520 this time last year. Inflation RPIX (excluding mortgage interest payments) at 3.4% as of April 2018. CPI 12-month rate was 2.4% in April 2018, down from 2.5% in March 2018. Weekly Earnings for employees in Great Britain in nominal terms increased by 2.9% excluding bonuses, and by 2.6% including bonuses, compared with a year earlier. Retail Sales in April 2018 increased by 1.6 % when compared with the previous month, as all sectors, excluding department stores, recovered from the declines seen in March. The Index of Services (79.3% of UK GDP in 2015) increased by 0.1% between February 2018 and March 2018. Distribution, hotels and restaurants contributed negative 0.16 percentage 2018 Jones Lang LaSalle IP, Inc. All rights reserved. points to the monthly movement and partially offset positive contributions from the other three main components. The total UK trade (goods and services) deficit narrowed 0.7 billion to 6.9 billion in the three months to March 2018; due mainly to falling goods imports from non-eu countries. Excluding erratic commodities, the total trade deficit widened 1.2 billion to 8.5 billion. Manufacturing grows in May. PMI showed a reading of 54.4, up from higher than the 53.9 in April. Unemployment Rate was 4.2%, down from 4.6% for a year earlier. There were 1.42 million unemployed people, 46,000 fewer than for October to December 2017 but 116,000 fewer than for a year earlier. UK Annual house price growth slowed to 2.4%. Prices fell 0.2% month-on-month. GDP forecast for 2018 at 1.3% and at 1.4% in 2019. Property view IPD Total Returns for all Property in the 12 months to April 2018 11.1% (March 2018 11.3%). IPD Total Returns for the sectors in the 12 months to April 2018 were: Offices 8.5% (March 2018 8.6%), Industrial 21.6% (March 2018 21.6%), Retail 6.7% (March 2018 7.1%). Rental growth (monthly rates) up 0.05% (Offices up 0.04%, Industrial up 0.26% and Retail down -0.07%). Investment Volumes 18,223m Year to Date (Jan-May). (Compared to 21,542m in 2017). 2
UK Commentary Sentiment Prices steady supported by rental growth as yields flattening out. Shortage of product. Demand competitive for quality assets across UK especially in South East London, attracting safe haven and of trophy investment. Buyers from Sovereign Wealth Funds, Asia Pacific, Germany, US, Middle East also UK private/ opportunity fund/investors property companies, UK institutions. Yields stabilised. IPD all property equivalent yield at the end of April 2018 is 5.9%. International US economic activity in the manufacturing sector expanded in May, and the overall economy grew for the 109th consecutive month. The May manufacturing PMI registered 58.7 percent, an increase of 1.4 percentage points from the April reading of 57.3 percent. GDP 2018 forecast at 2.8% and 2019 forecast at 2.2%. The US Economy grew 2.9% (y-o-y) in Q1 2018. Brent Crude at $77.7 a barrel. In the Eurozone GDP growth forecast at 2.2% in 2018 and 1.7% in 2019. Across the EU, GDP is forecast to expand by 2.1% in 2018 and 1.8% in 2019. Unemployment in the Eurozone at 8.5% in April 2018 (13.880 m people), down from 8.6% in March 2018 and from 9.2 % in April 2017. Unemployment rate at 20.8% in Greece (youth 45.4%), 15.9% in Spain (youth 34.4%). Eurozone youth unemployment was 17.2% in April 2018. Czech Republic unemployment rate at 2.2%, Germany 3.4%. Asia GDP growth forecast for 2018 at 4.6% and 4.5% in 2019. Malaysia: GDP 2018 forecast at 5.3% and 4.5% in 2019; Vietnam: 2018 forecast at 6.6% and 6.3% in 2019; Japan GDP growth at 1.2% in 2018 and 1.1% in 2019. South Korea GDP growth forecast at 2.7% in 2018 and 2.6% in 2019. Economic strength persists. Merchandise exports receipts rebounded in May, driven by ongoing demand for semiconductors and petrochemical products. Global demand supports export growth. Singapore: Q1 GDP growth was revised up marginally to 4.4%. Q1 is expected to mark the peak in economic growth this year, with export growth and manufacturing activity to ease as Chinese import demand cools. Residential investment is projected to become less of a drag on headline GDP and improving labour market conditions are expected to support household spending. Overall, GDP growth is forecast at 3.1% for 2018 as whole, before moderating to 2.4% in 2019. China: consumption growth is a key driver in the economy. Three major trends underpin the outlook (i) rising demand for discretionary items (ii) consumption of services now outpacing that of goods (iii) widening adoption of digital technologies. GDP growth forecast at 6.4% for 2018 and 6% 2019. 2018 Jones Lang LaSalle IP, Inc. All rights reserved. 3
JLL prime yields Sector Retail High Street Yield Movement since last month Movement over last 12 months Prime 4.25% Regional 5.00% Market Towns 5.75% Small Market Towns 6.25% Shopping Centres Super Prime 4.00% Prime 5.25% Town Central Dominant 6.25% Secondary Centres 9.00% Tertiary Centres 12.00% Retail Warehouses Parks Open A1/fashion 4.75% Parks Bulky Restricted 5.50% Parks Secondary 7.25% Solus Units A1 4.75% Solus Units Bulky 5.50% Food Stores Supermarkets 4.75% Leisure City Centre 5.00% Out of Town 5.25% Office City < 40m 4.25% City 40m - 125m 4.25% City > 125m 4.25% Sector Offices Yield Movement since last month Movement over last 12 months West End < 10m 3.50% West End 10m - 80m 3.75% West End > 80m 4.00% Greater London Area Preferred 4.75% M25 Towns Preferred 5.00% Top Regional Cities 4.75% Secondary Towns/Cities 7.00% Business Parks South East 5.75% Business Parks Regional 7.00% Industrial/Logistics South East Single Let 4.00% Regional Single Let 4.50% South East Multi-Let 4.00% Regional Multi-Let 4.75% Alternatives Car Showrooms 4.50% Healthcare Care Homes 4.25% Hotels 4.25% Student Accommodation 4.00% JLL Prime Yield 4.61% Money Markets LIBOR 3 month 0.62% SWAP 5 years 1.27% Gilt 10 years 1.33% Base rate 0.50% 2018 Jones Lang LaSalle IP, Inc. All rights reserved. 4
Contacts London Hugo Raworth hugo.raworth@eu.jll.com 020 7087 5859 North West Tim Luckman tim.luckman@eu.jll.com 0161 828 6426 North East Simon Cullimore simon.cullimore@eu.jll.com 0113 235 5241 Midlands James Daffern james.daffern@eu.jll.com 0121 214 9902 South West Daniel Bishop daniel.bishop@eu.jll.com 0117 930 5991 Scotland Niall Bryers niall.bryers@eu.jll.com 0141 567 6647 Jll.co.uk 2018 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorization of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof. 5