1. The West Midlands Real Estate Investment Market
Wednesday 6 September 2017
Jonathan Hillcox
Senior Director
Thank you Ian and good afternoon ladies and gentlemen.
I would like to set the West Midlands Real Estate Investment Market in context by touching on:

2. Investment Transactions Yield Movement Rental growth forecasts
Major deals
Investment Market Drivers
Investment Transactions
Yield Movement
Rental growth forecasts
Major deals
Factors driving the market going forward
The West Midlands Real Estate Investment Market

3. Investment Transactions
This slide illustrates the volume of deals over the last five years, both overseas (red) and UK buyers (blue).
The market performed well in 2016 with £3.4 billion of transactions recorded, up by 30% from 2015.
The first half of 2017 saw £1.4bn changing hands, of which nearly 40% was bought by overseas investors.
The number of deals is significantly down however, as investors seek to grow their portfolios in the region and with limited opportunities to reinvest sale proceeds, there are few motivated sellers.
The West Midlands Real Estate Investment Market

4. Yield Movement
This demand for investment opportunities has fed through to the average yields investors will accept.
The EU Referendum had minimum impact on yields.
We see office and retail yields stabilising, but further hardening of industrial yields, closely linked to rental growth expectations.
The West Midlands Real Estate Investment Market

5. Rental growth forecasts
Our forecasts for rental growth show significant variation by sector.
Industrial / distribution outperforms at nearly 3% pa to 2020, driven largely by the continuing growth in e-tailing.
The Midlands continues to attract the largest share of big box / logistics take-up in the UK, accounting for nearly 45% so far this year compared with 35% in 2016.
We see retail underperforming, with growth close to zero.
As for Offices: the subdued development cycle means a relative shortage of stock, insulating rental levels from any post-Brexit slow down in demand.
I would now like to highlight two major deals which have taken place in the West Midlands this year.
The West Midlands Real Estate Investment Market

6. Major deals Three, Four, Five, Six & Nine Brindleyplace, Birmingham
603,255 sq ft
Office-led mixed use estate
Purchased by HSBC Alternative Investments for £260 million reflecting NIY 6.0% in February 2017.
Five office buildings – the majority of the Brindleyplace estate: Tenants include RBS, Deutsche Bank and GVA.
This 600,000 sq ft portfolio was bought in February by an overseas consortium managed by HSBC for £260 million.
This is one of the largest office deals ever in the region, and a welcome boost to market confidence after the Brexit vote.
The West Midlands Real Estate Investment Market

7. Major deals Sainsburys Depot, Hams Hall, Coleshill 783,651 sq ft
Purchased by a Korean consortium for £102 million reflecting NIY 5.23% in June 2017.
In the industrial/distribution sector, the Sainsburys depot at Hams Hall was sold by private West Midlands property company, IM Properties in June to Korean investors for £102 million.
During the 12 months to June 2017, the industrial/distribution sector accounted for the highest proportion of transactions in the West Midlands at 33%, up from 14% in 2016.
The West Midlands Real Estate Investment Market

8. Investment Market Drivers
Below-trend economic growth nationally
Uncertainty over the impact of Brexit on occupiers
Shortage of quality investment stock
Lack of quality occupier stock supports prime rental values
Exchange rate boost for overseas buyers and wide gap between gilt and property yields
Regional demographics + structural change are highly supportive of many occupational sectors
Looking at the factors driving the market there are some threats but also opportunities for the West Midlands region to capitalise on its infrastructure investment programme.
Economic growth in the West Midlands is expected to continue at an average of 1.8% pa over the next five years, broadly in line with the national average. A combination of sectors underpin this growth, particularly accommodation, food & leisure and construction.
Population growth forecast is strong in Birmingham in particular  with an average growth of 0.75% pa over the next five years, above the UK average of 0.6%.  Importantly, this is largely driven by an increasing working age population, as the city sees an improvement in its skilled labour and student retention rate.
In conclusion: While we have UK Institutions, private investors and local authorities looking to buy here, the fact that nearly 40% of property investment in the West Midlands so far this year is from overseas buyers demonstrates the increased profile that the region has earned on the global stage. Thank you!
The West Midlands Real Estate Investment Market

9. Panel Session – Investing in the West Midlands
Chair:
Ian Stringer, Regional Senior Director, GVA Midlands
Panel:
Dr Colin Clinton – Regional Project Manager, ME Investment Hub, DIT
Chris Urwin – Head of Global Research Real Estate, Aviva Investors
Jane Kemp – Partner, Adducere LLP
Chris Perkins – Head of Business Space, M&G Real Estate
The West Midlands Real Estate Investment Market