1 / 69

Macroeconomics

Macroeconomics. and property valuation. Introduction. Real estate is a ‘factor of production’ and a ‘basic social requirement’ Demand for it is ‘derived’ Supply is affected by many externalities Supply and demand drivers influence the value of real estate. ‘Derived’ demand sectors.

yin
Download Presentation

Macroeconomics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Macroeconomics and property valuation

  2. Introduction • Real estate is a ‘factor of production’ and a ‘basic social requirement’ • Demand for it is ‘derived’ • Supply is affected by many externalities • Supply and demand drivers influence the value of real estate

  3. ‘Derived’ demand sectors • Development • Occupation • Investment

  4. Geography • International • Regional • City-regions • Towns and cities • In-town / out-of-town • Neighbourhoods • Streets

  5. Uses Commercial Retail Shopping centres Standard units Retail warehouses Outlets Department stores supermarkets Offices Business parks blocks • Residential • Owner-occupied • Private rented • Affordable • Industrial • Factories • Warehouses • Standard • Distribution • Data • Other • Leisure • Etc.

  6. Use Classes • A1 Shops • A2 Financial and professional services • A3 Restaurants and cafés • A4 Drinking establishments • A5 Hot food takeaways • B1 Business • B2 General industrial • B8 Storage or distribution • C1 Hotels • C2 Residential institutions • C3 Dwellinghouses • C4 Houses in multiple occupation • D1 Non-residential institutions • D2 Assembly and Sui Generis

  7. Quality • Prime • Secondary • Tertiary

  8. Many types of shop • Investors seek ‘prime’ property • Secure due to ‘goodwill’ and capital investment by tenant • New areas more risky - turnover rent - city centre prime mall Retail – city centre prime

  9. Retail – city tertiary Retail – city centre secondary Retail – out of town prime mall

  10. …and conversions-prime/secondary Offices – city centre prime…

  11. Business parks

  12. Offices – out of town purpose built prime and out of town speculative prime / secondary

  13. Industrials • Starter units • 3 year leases • Capable of being used (under GPDO) and therefore fitted out as office and/or industrial space • Medium-sized units • Include office space • 5-10,000 ft2 • Large units • Typically don’t fit out ground floor • 30,000 ft2 • 8m eaves • Flexible space

  14. Change of use

  15. Heavyindustrialmanufacturing Lightindustrialtrading estate

  16. Warehousingtrading estate Office / warehouse out of town

  17. Warehousing, B8 space...

  18. ?

  19. Data centres • Approx. 120,000 ft2 • 25 year leases • 24 hour security • 10m eaves • Mezzanine • 30MVa (cf 300kVa) • 25% higher rent than industrial • Within 25 miles of London

  20. Leisure: city centre and out of town complex

  21. Residential

  22. Key indicators: supply • New development • Number of (and level of employment in) construction and real estate firms • Availability of space • Vacancy rate classified by land use • Expect a churn (natural vacancy) rate due to companies moving and lumpy supply (higher in volatile, fast-growing market, lower in supply restricted market) • Inversely correlated with rental value • If typical lease is 5 yrs then 20% firms looking to renew/relocate each year • Vacant floorspacet = vacant floorspacet-1 + new floorspacet – net absorption • Developers • Merchant developers • Investor developers • Owner occupiers

  23. Vacancy (shops) End of Year Report 2009: Dawn of a better market! 10th February 2010 Local Data Company

  24. Key indicators: demand andmarket clearing Occupiers • Prices • Rents and lease terms • Care over rent definitions: asking, headline, effective • Rate of change in rents and prices over time Investors • Prices (capital values) • Yields All • Number of transactions • Take-up / absorption (quantity of space taken per period) • Gross absorption includes moves within market • Net absorption = net increase in occupied space • Expansion (majority usually local) • In-moves (look at differential between rent and vacancy rates in local, national, international markets) • Occupiers • Tenants • Owner occupiers • Investors • Institutions • Overseas • Private

  25. Development • Supply side variable • Supply pipeline (by sector and graded according to quality) • ONS Construction Statistics Annual • Value of construction output classified by land use and location • Planning applications • Redevelopment or refurbishment costs • BCIS • Spon’s ‘Architects’ and Builders’ Price Book’ • Consider • Appropriate spatial scale • Probability of completion • Net addition to supply (i.e. deduct demolitions and conversions) • Refurbishments

  26. Land market • Land prices – market clearing or equilibrium variable • VOA Property Market Report: live link

  27. NON-DOMESTIC - Stock Total floorspace of commercial and industrial propertiesin England and Wales = 596m sqm

  28. NON-DOMESTIC - Occupiers Source: UK Business

  29. NON-DOMESTIC - Value Around half of the non-domestic stock is owner-occupied, the other half owned by investors Source: UK National Accounts (The Blue Book)

  30. Source: UK National Accounts (The Blue Book)

  31. Retail premises have the highest rateable value (£128/m2) and factories the lowest (£29/m2)

  32. NON-DOMESTIC - Value • Brokerage and transactions • CoStar (Focus) • EGi • IPD • Market reports • Lease events • BPF IPD Annual Lease Review • S&P IPD Lease Events Review

  33. Domestic: Residential (live tables) • Stock • House building • Housing renewal (including Disabled Facilities Grants) • Household estimates and projections • Housing market and house prices • Rents, lettings and tenancies • Homelessness • Household characteristics • Housing finance and household expenditure • Social housing sales • Affordable housing supply • Repossession and repossession prevention • Local level statistics • Housing Surveys • Housing data index • Mortgage rates • Mortgage loan originations • First-time buyer LTVs • Prices: • Land Registry • Zoopla, Rightmove, etc. • Price indices • Land Registry • Nationwide, Halifax

  34. NON-DOMESTIC - Value

  35. Influences on propertyinvestment returns and yields • Main variables affecting property yields: • Rents • Inflation • Interest rates • Bond yields • institutional investment in property • company productivity • Main variables affecting all property returns: • Supply of floorspace in relevant sector • Inflation • Exchange rate • Interest rates

  36. Influences on propertyinvestment returns and yields • Main variables affecting retail property returns: • Consumer expenditure • Sales • Employment • Savings ratio • Personal sector liquidity • Company profitability • House prices • Housing starts • Average earnings • Personal disposable income • Personal sector retail credit • Car sales • Main variables affecting office property returns • GDP • Service sector employment • Gilt yields • Exports / imports of services • Stock market indices • Company sector liquidity • Fixed investment • Company productivity • Corporation tax • Main variables affecting industrial sector property returns: • GDP • Manufacturing output • Capacity utilization • Gilt yields • Manufacturing earnings • Manufacturing productivity • Exports (goods) • Company productivity • Imports (goods) • Fixed investment

  37. Investment market data • Market reports • CBRE UK Prime Rent & Yield Monitor and Monthly Index • JLL UK Property Index • IPD • Annual index • Property Investors Digest • Local Markets • IPF • Consensus Forecast

  38. Source: IPD

  39. Source: IPD

  40. Source: IPD

  41. Source: IPD

More Related