The last year has seen dramatic improvements for the UK economy, and crucially such improvements have not been confined to London, as was the case in the initial rebound of 2010. Economic growth has now been consistent for the last six quarters, and positive quarter-on-quarter since Q4 2012.
The last year has seen dramatic improvements for the UK economy, and crucially such improvements have not been confined to London, as was the case in the initial rebound of 2010. Economic growth has now been consistent for the last six quarters, and positive quarter-on-quarter since Q4 2012.
However, confidence has taken rather longer to return to the commercial property market, with investment returns moderating until the third quarter of 2013. Since then, performance has improved across the market, even in the beleaguered regional retail sector. Meanwhile, London has strengthened further, with returns in 2014 close to double those for the equivalent quarters of 2013.
Growing confidence in the UK economy has bolstered occupier demand, helping lease terms to stabilise and even lengthen as the risk associated with letting subsides in many parts of the market. Similarly, landlords, faced with growing demand for space from tenants, have been able to agree longer terms and reduced incentives, as the UK market edges towards conditions not seen since before 2007.
Lease expiries, break clauses, vacancies and defaults are all risks which investors need to assess when evaluating the income streams from commercial real estate. These can be considered as a series of options in the future cash flow from real estate assets. Their analysis is crucial for helping investors, occupiers, and landlords to understand the potential of the space they occupy or the income stream they expect.
This Lease Events Review for the year 2013 and the half-year to June 2014, produced by IPD, provides empirical evidence on the likelihood of different lease events and outcomes. The analysis for the end of 2013 is based on a sample of over 90,500 leases, held in the IPD UK Annual and Quarterly Property Universe.
The lease events section of this report examines the influence of three key types of lease event on the property investment market: lease expiries, break clauses and changes in rental conditions upon lease renewal. Each of these factors is intrinsically linked to the broader economic landscape and changes in business activity, exports and consumption, all of which have a direct impact on leasing conditions.
View the full Lease Events report.