Property Data Report 2012 – Who Owns What?

The Property Data Report 2012, released this month by the Property Industry Alliance, highlights the rapidly changing nature of commercial property ownership in the UK.

For the first time, the report also includes information both on property debt and the sustainability of the commercial property sector.

Here are some key facts from the report.

UK commercial property’s value in 2011 reached £717bn – half that of government bonds and about two fifths of UK equities.

“Core commercial property” - comprising retail, office and industrial property, dominates the commercial sector and accounts for £617bn worth of investment.

The “other commercial property” sector, which includes hotels, restaurants, pubs, car showrooms, petrol stations, cinemas and theatres, accounts for £100bn (other non-domestic buildings (including public buildings such as schools and hospitals) amount to £103bn).

The commercial sectors are dwarfed however by residential property, which accounts for a whopping £4,224bn and also far outweighs any other asset class in the UK.

Its value is almost six times the size of commercial property.

Retail, at £227 billion, is the largest commercial property sector, but offices are catching up, having seen greater capital value growth in 2011.

Over half of commercial property is rented, compared to only a third of housing.

The average length of a new lease continues to reduce and in 2011 fell to below 5 years, compared to 8.7 years in 1999.

76% of new leases were between 1 and 5 years; 33% had break clauses and the average rent free period was 8.8 months.

The shortest average lease length is in the industrial sector – at only 3.5 years.

Retail warehouses, where demand from tenants is relatively strong, have the longest leases.

UK institutions are still the biggest owners of commercial investment property, but they are being caught up by overseas investors, who already own more than half the offices in the City of London.

Ownership by collective investment schemes (managed funds, property unit trusts, limited partnerships, etc) has also grown substantially.

In one way or another, most of the capital invested in UK commercial property is used to provide pensions and savings for UK households.

The report gives more information on property debt - approximately £235 billion of debt is currently secured on commercial property, including developments. This represents a third of the total value of commercial property.

It also includes more information on investors and investment performance - directly owned commercial property returns were 7.7% in 2011, far better than that of UK equities but well below gilts. Property company shares though have been more volatile.

New development has been affected badly during the global financial crisis, reducing it to a third of the level recorded during the earlier part of the decade.

The report also contains information on energy consumption and CO₂ emissions.

Housing and transportation are by far the largest sources of energy consumption and account for the majority of CO₂ emissions.

The report concludes that residential and, to a lesser extent, commercial and public sector buildings represent one of the most important untapped potential sources of energy savings and reduced greenhouse gas emissions.

The report was produced by the Association of British Insurers, the Association of Real Estate Funds, the British Council for Offices, the British Council of Shopping Centres, the British Property Federation, the Investment Property Forum, the Royal Institution of Chartered Surveyors and the Urban land Institute.