For Professional Investors only

July 2024

UK Real Estate
Talking points
Welcome to Columbia Threadneedle Investments’ quarterly
snapshot of current real estate market trends, using transparent
market data to summarise key implications for asset allocationand performance prospects.
All data to 30 June 2024, unless stated otherwise.
1

UK Real Estate: Talking points | July 2024

Thomas Road, High Wycombe

Capital market context:
MSCI Monthly UK Property Index –income, capital and total returns
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%-5.0%-6.0%

Monthly income

Capital appreciation

Jun-24

Dec-23Jun-23

Dec-22Jun-22

Dec-21

Jun-21

Dec-20Jun-20Dec-19Jun-19Dec-18Jun-18Dec-17

Jun-17

Dec-16Jun-16

Dec-15Jun-15

Dec-14Jun-14-7.0%

Total return

FINANCEREAL ESTATESPREAD: 3.1%

5-year Gilt: 4.0%
5-year Swap: 4.0%

NIY: 5.6%
EQV: 7.1%(5-year Gilt to EQV)

Talking points■■■

Stronger than expected economic performance delivered in Q1 with an 0.7% expansion of the economy, boosted bybetter than anticipated consumer spending.
The 4 July General Election returned a 172-seat majority for the Labour Party, providing welcome stability, and theexpectation of supportive policy (e.g., planning reform) for real estate investors and owners.
Real estate total returns turn positive through the quarter, as office value falls are offset by industrial rental growth
and retail warehouse yield strengthening.

Source: Columbia Threadneedle Investments, JLL and MSCI Monthly UK Property Index, all as at 30 June 2024 unless stated otherwise. Opinions, estimates, forecasts, projections andstatements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be noguarantee they will be met. Provided for information only, not to be construed as investment recommendation or advice. Past performance is not a guide to future returns. Capital is at
risk and investors may not get back the original amount invested. Not all investment ideas are suitable for all investors.
2UK Real Estate: Talking points | July 2024

State of the market:
Key sector metrics as at 30 June 2024

INDUSTRIALSOFFICESRETAIL

ALTERNATIVESReduced speculative
development will
underpin rents
with vacancy
trending downwards

Polarisation between
good quality, welllocated offices
and the rest of themarket persists

Out-of-town schemes
attracting the bulkof interest, but
options limited due toslim pipeline

Appetite for ‘Beds’and ‘Meds’ persists,
supported bydemographic andstructural changes

Vacancy*(By Market Rent)

7.5%

23.1%

6.0%

1.6%

Rental Growth*(Annualised)

6.3%

2.3%

0.8%

3.9%

Prime Yield Pricing**(Net Initial Yield,rack rented)

Distribution: 5.25%

 London (City): 5.75%

Warehouse: 5.75%

Student: 5.00%

Multi-let: 5.25%

Regions: 6.50%

High Street: 7.00%

Leisure: 8.00%

Allocation

Favour multi-let andmid-box logistics.
Neutral big-box
distribution

Highly selective:
favour urban centreswith good amenity
and accessibility

Favour out-of-town
warehouses / parks
with repositioning
potential

Favour, strategic land,‘meds’ and residential
including student
housing

Headlines

Strengthening

StableWeakening

Talking points■■■

Investment activity remains subdued against long-run averages, but this is expected to improve over H2 2024 following
the general election.
Divergence in capital values at a sector level is evident, with retail warehousing leading the way in terms of the recovery,
followed by industrials (the latter driven more by rental growth then yield compression).
Despite rising rents attributable to ‘best-in-class’1 assets, office capital values continue to trend down on risk appetite,
but declines are moderating as pricing rebases.

OUTLOOK IN ONE LINE

Political stability, rebased pricing, falling inflation and the expectation of rate
cutting are collectively expected to provide a more supportive environment for
UK real estate. Together with resilient rental growth across favoured sectors, thishas the potential to deliver elevated forward-looking returns.
1‘Best-in-class’ in terms of location and quality.

Source: Columbia Threadneedle Investments, *MSCI UK Monthly Property Index and **CBRE Prime Yields, all as at 30 June 2024 unless stated otherwise. MSCI UK Monthly Property Index Vacancy rate and Market Value Rental Growth (Alternatives data is unweighted average Hotels, Residential, Other), as at 30 June 2024. Trends against average of prior 6-months (+/<0.25% denotes stable). Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constituteour judgment and are subject to change without notice. There can be no guarantee they will be met. Provided for information only, not to be construed as investment recommendation
or advice. Past performance is not a guide to future returns. Capital is at risk and investors may not get back the original amount invested. Not all investment ideas are suitable forall investors.
3UK Real Estate: Talking points | July 2024

Theme in focus: Energy
KEY STATISTICS1
Battery, electric and hybrid car registrations reached 695,000 in 2023 and areforecast to reach 1,007,000 in 2025
The UK had 15,657 MWp of installed Solar PV, producing 13.8 TWh ofelectricity (2023). Assuming a grid intensity of 0.225 Kg CO2/kWh, this savedc.~3.11 million tonnes of carbon
Renewables contributed 41.1% to UK energy mix in 2023; wind 29.4%, biomass
5.0%, solar 4.9%, hydro 1.8%

House view■

■

■

■

Green energy infrastructure can be delivered either through existing buildings or by repurposing surplus land or
assets. Successful green energy real estate assets of the future are likely to derive significantly enhanced revenues
through a mix of power generation and provision.
The two principle drivers of value are power generation, primarily derived from rooftop solar photovoltaic (PV) panel
installations, and power provision, typically through electric vehicle (EV) charging.
Revenues can also be derived through power storage (batteries), leveraging the arbitrage in the electricity pricedifferential at various points in the day, although this is less tested and typically attracts higher capital costs.
The green energy transition presents a real opportunity for real estate to deliver additional value, providing investors
with the potential for enhanced financial returns while simultaneously delivering on the environmental agenda.

Next quarter: Offices

About the Manager
Columbia Threadneedle Investments
manages a diverse global real estate
platform totalling £20bn2 with a team of200+ property experts operating fromoffices in London, Paris, Munich andHouston.
We are an experienced, dynamic andresponsible manager of real estate in
the UK, active across the full risk / return
spectrum of the market, focused ondelivering strong, consistent returns forclients.

We invest at scale in the UK3

Assets are actively and responsibly managed4

£8bn

40

£1.2bn700+£5.7bnAUM

Investment
professionals

Annualinvestment
turnover*

Annualleasingtransactions*

GRESB

700+

4,200+ 3,400 100+

£2.6bnProperties

Tenancies

Net Zeroaligned

Annualpurchase
opportunities*

Works projects
completedannually*

Source: Columbia Threadneedle Investments, as at 30 June 2024, unless stated otherwise. Past performance is not a guide to future returns. Capital is at risk and investors may not getback the original amount invested. Not all investment ideas are suitable for all investors.
1. Key statistics sourced from MSCI UK Property Monthly Index (as at 30 June 2024), The Society of Motor Manufacturers and Traders (April 2024), The Energy Institute (2023) and theNational Grid (2023).
2. As at 31 March 2024. The total AUM in USD terms: $25.4bn.
3. As at 31 March 2024. The numbers are for the UK direct real estate team. The AUM in USD terms: $10.1bn.
4. As at 31 December 2023. *3-year average as at 31 December 2023.
4

UK Real Estate: Talking points | July 2024

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