1 joe valente director of research and development "statistics are like a bikini. what they...
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3 …He who lives by the crystal ball soon learns to eat glass…TRANSCRIPT
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Joe Valente Director of Research and Development
"Statistics are like a bikini. What they reveal is suggestive, but what they conceal is vital."
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“Indexing” ABCN
May 2005
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…He who lives by the crystal ball soon learns to eat glass…
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The Role of Property
• Unit of production
• Source of cost
• Potential value
• Real Estate in the 21st Century
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• 24/7
• 200+ TV channels
• Shopping trips to New York
• The internet
• £5 flights
• Banks without branches
• SAC
• Offshoring
• Brand literacy at 2.5 yrs
• Virgin pensions
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• Big is beautiful
• Size, mass and brawn
• Commanding presence
• Standardisation
• Office cost & productivity
• Hierarchical management
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Routes to Profit:• More of the same
• Be more efficient
• Cut costs
• Innovate
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• Human capital rather than real estate lies at the centre of the value chain
• Speed to market attracts a premium
• Real estate as a service
• How much space… …where…for how long…
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• A question of definition
• Asset value of £3.75 bn
• Rapid growth
• Regional disparities
•…Apparently not all publicity is good publicity !!
• The nature of competition
The UK Market
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BusinessCentres
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Workspace
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MainstreamOffice
The UK Market
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Real Net Effective Rents
0
20
40
60
80
100
120
140
160
180
200
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
£/Sqft
City Real Effective Rent W/E Real Effective RentSource: DTZ Research
0
2
4
6
8
10
12
14
16
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002/3
Source: BPF IPD Annual Lease Review
Year
s
Lease Lengths
Mainstream Office Market
Eroding value of cost and flexibility proposition
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Key Trends:
• Corporate change favours flexible space provision
• …But its not a universal panacea
• Increased M&A activity
• Clear market proposition
• Emergence of brands
• Structural change… …investment asset class
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Property Brands:• Where’s brand value in
property?
Trust
Consistency
Quality
Risk management
Market premium
Emergence of strong covenants
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Investment Stock
0
5
10
15
20
25
30
35
40
45
50
1999 2000 2001 2002 2003 2004 2005*
Source: DTZ Research
£ billion (current prices)
* DTZ Forecast
• Strong appetite for real estate
• Wide range of investors active in the market
• Location, location, location?
• Legislative change
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US REITs by Real Estate Sector
Mortgage6%
Self Storage3%
Industrial/Office27%
Diversified8%
Residential16%
Retail26%
Lodging/Resorts4%
Health Care5%
Specialty5%
• UK is the only G8 economy that does not have a “Reit” type vehicle
• Consultation period
• Announcement expected in Finance Act, April 2006
• Allowed to invest in all property types
• Source of capital or investment product?
• Definition of investment grade stock is/will change
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Liquidity: • Improved liquidity across whole range of specialist sectors
• Income generation is the key
• Diversification
• Exit route
Self storageNursing homes
Student accommodationHotels
Lodges
LeisureHealth care
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Exit Strategy:• Institutional holdings
• LPs
• Bank debt
• Corporate portfolios
• Public sector
• Business centres?
Publ
ic s
ecto
r
LPs
Buy
to le
t
Inst
itutio
ns£10bn
£17bn
£38bn
£90bn£110bn
£135bn
Corp
orat
es
Priv
ate
debt
Busi
ness
Cen
tres
£4bn
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Transparency:
• Benchmarking
• Value of data
• Credibility/trust
• Robustness
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Towards an Index:• UK survey
• KISS
• Going global
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Summary:
1. Investor attitudes are changing …definition of investment stock has and will continue to change
2. “why invest?” … the business case needs to be made
3. Clear market proposition and greater transparency…It is not an optional extra !
4. Brand value…premium
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Questions?