CBRE recorded total investment of £240.5m in Q3 2017. There is currently close to £2bn worth of deals under offer. Total equity targeting the UK’s Build to Rent (BtR) sector over the next five years now exceeds £30bn. The BtR planning pipeline has increased by 12,000 units since July 2017. Prime investment yields remain stable.
UK commercial property returns 8.2% in 2017 so far Capital values increased 0.6% across UK commercial property in September. Rental values increased 0.1% over the month. Property capital values increased 1.4% over the third quarter of 2017. Total returns at the All Property level were 2.7% in Q3, bringing returns to 8.2% fpr 2017 so far.
For Q3 2017 originations, Senior CRE lending returns are forecast to be 3.4%pa on a gross basis and 3.1%pa on a risk-adjusted basis. This represents an increase of 7-11bps on Q2 returns. We estimate that senior margins were broadly flat in Q3 2017. 5yr swap rates rose over the second quarter, ending 7bps higher than at the end of Q2 2017, and making for a 19bps rise over the year to date. At the all property level, our forecast for capital growth weakened somewhat. However, there were improvements in some key sectors, and this resulted in a modest fall in Probability of Default and Expected Loss. The key measure for banks, Return on RWA (calculated here as a function of margin and fee alone), saw some gains. On an RoRWA basis, gross returns were 3.2%pa and risk-adjusted returns 2.5%pa, assuming Strong slotting treatment. Senior CRE lending offers an extremely healthy premium of 2.3%pa to the risk-free rate, on a risk adjusted basis. Against corporate debt, the relative return offered by senior CRE debt remains very strong, at 1.8%.
Central London in August 2017 As the market entered the traditionally quiet summer period, take-up fell to 0.4m sq ft in August 2017, 65% below the 10-year average. Availability remained flat in August, standing at 14m sq ft, 5% below the 10-year average. Under offers increased by 11% during August to 3.6m sq ft, 27% above the 10-year average. The largest deal of the month was a 30,300 sq ft deal at 4 Kingdom Street in Paddington.
The overall European hotel investment volume was up +31% y/y for Q2 2017. This contributed to a +6% y/y increase for H1, with the deal volume reaching almost €9 billion. The Spanish hotel investment market soared with a significant increase of +228% y/y in transaction volumes, reaching over €2 billion for H1 2017. Italy and the Nordics also saw significant growth for the same period. The declining investment volumes for the United Kingdom and Germany are mainly attributed to a shortage of investable stock and large portfolio transactions in H1 2016,