Overseas investors have overtaken domestic insurance companies as the largest single investor group owning almost one-quarter of the UK invested commercial property market, according to a new research paper which quantifies the inexorable rise of non-domestic investment in UK property.
The IPF has today published a summary report which quantifies the size and structure of the UK commercial property market which estimates that overseas investors have more than doubled their ownership of UK commercial property in the last 10 years to £88bn, or 24% of the entire £364bn invested UK commercial property market.
“Overseas investors have displaced insurance companies to become the largest single investor type with £88bn of commercial property in mid-2013,” wrote Paul Mitchell, author of IPF’s research paper, entitled The Size and Structure of the UK Property Market 2013: A Decade of Change.
“Having more than doubled since 2003, their £88bn stake is the culmination of a consistently growing share and holdings growing at a trend rate of 8% per annum after property price growth. This investment has been led by overseas fund managers and sovereign wealth funds, who have each accumulated around £10bn (mid-2013 prices) since the end of 2003.”
While this 113% rise over the last 10 years is substantial, by comparison, overseas investors’ ownership of the UK stock market dwarfs the proportional ownership in the UK commercial property market with 53.2%, according to the latest data from the Office of National Statistics.
The IPF’s estimated £364bn size of the “invested” UK commercial property market – that is, stock owned by the professional real estate investor market – reflects a 27% rise on the estimated £286.6bn market size of the market at the end of 2003, explained by a migration of stock into the invested universe.
The overall value of the UK commercial property market, according to the IPF research, is £647bn. This reflects an 11% increase on 2003’s £580bn restated estimation, but still 25.3% below 2006’s peak total value estimate of £867bn.
By implication, the size of the non-invested UK commercial real estate market – comprised of a mix of granular and larger retail and office stock from small shops, supermarkets to blue chip corporate owner-occupied commercial buildings – is approximately £284bn.
The size of the non-invested market has definitively shrunk over the last decade. The IPF figures show that over the 10-year period, investment portfolios have risen by £77.4bn, or 27%, to £364bn at the same time that the overall size of the UK market has increased by £67bn, or 11%.
This can be explained, inter alia, through corporates divesting property portfolios through sale and leasebacks as well as hotels owners changing ownership structure and the expansion of alternative property segments such as healthcare and student accommodation.
IPF’s research breaks down the ownership of the UK invested commercial property market into nine major investor types.
Investors’ invested stock ownership, proportion of the market and change over the decade is as follows:
- UK insurance company funds: own £41bn, or 11% (of total £364bn), reflecting an 29% decline;
- UK segregated pension funds: own £30bn, or 8% of total, reflecting –1% decline;
- UK and Channel Island-domiciled collective investment schemes: own £59bn, or 16% of total, reflecting a 118% increase;
- UK REITs and listed property companies: own £52bn, or 14% of total, reflecting a 30% increase;
- UK private property companies: £50bn, or 14% of total, which is static;
- UK traditional estates and charities: £16bn, or 4% of total, reflecting a 18% increase;
- UK private investors: £10bn, or 3% of total, reflecting a 27% increase;
- UK other: £18bn, or 5% of total, reflecting a 23% increase;
- Overseas investors: £88bn, or 24% of total, reflecting 113% increase.
In the full research paper, still to be published, the IPF also offer indicative estimates of the weighted average leverage of each investor category.
Mitchell wrote in the IPF paper’s conclusion: “The investment market has been able to grow faster than the underlying stock of property, as a result of owner-occupiers dis-investing, and, to a lesser extent, the opening up of alternative markets, such as healthcare, student accommodation and small niches, like youth hostels and marinas.
“Looking forward, an important observation is that investment grade stock in the two main commercial sectors, retail and offices, is now almost fully invested.
“With new development currently at low levels, this means that meeting the needs of new investors – mainly those from overseas if the trends of the last 10 years continue – will require the opening up of new markets.”