IPG - London Portfolio Analysis - 2016

Download IPG - London Portfolio Analysis - 2016

Post on 22-Jan-2017

28 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

<ul><li><p>LONDON PORTFOLIO ANALYSIS</p><p>2009-2013</p><p>UK MARKET UPDATE 2016</p></li><li><p>CONTENTSForeword 2</p><p>A shifting investment story 3</p><p>UK Market Overview 2005-2015 4</p><p>A look back 5</p><p>The worlds leading asset class 6</p><p>Capital outperformance 8</p><p>The London premium? 10</p><p>IP Global London Portfolio Analysis 2009-2013 12</p><p>Top 10 IP Global Projects 14</p><p>Leveraged vs unleveraged 17</p><p>Property location 18</p><p>Property size 18</p><p>Rental yield performance 19</p><p>Investment hotspot: Islington 20</p><p>Where next for IP Global? 22</p><p>Ripple effect 23</p><p>Outer London: flight to affordability 24</p><p>Investment hotspot: Sutton 25</p><p>Beyond London? 26</p><p>Investment hotspot: Manchester 28</p><p>Reflection 29</p><p>Methodology and disclaimer 30</p><p>Get in touch 31</p></li><li><p>A decade of success</p><p>This year marks a decade since IP Global was founded. In this time we have overcome a number of challenges, weathering a global recession to build our reputation as a trailblazing international property investment firm. </p><p>From the start, we have strived to change the way the world sees global property investment, putting it on a level footing with any other recognised asset class. Today we are proud to have supported our clients to invest USD2.3 billion across 30 markets.</p><p>Ten years since the journey began, we are reflecting on how it all started. This special report examines our history of investment activity in a key global investment market: London.</p><p>Today, the UK property market is top of many investors wish lists, but it wasnt always this way. Our founders were bold, believing in the dark days of 2008/2009 that Londons property market presented a huge opportunity. Reflecting on the combined GBP116 million in capital appreciation that those who invested with us in London between 2009-2013 have achieved, we were right.</p><p>This report is based on an analysis of valuation data from all forty-five IP Global London projects launched between 2009-2013. From this, we have been able to draw conclusions about what has worked best in the UK capital over the past seven years and why. We have also examined the attributes that have made UK and London property so attractive to investors, as well as taking a look at our present and future investment strategy.</p><p>Please feel free to get in touch if you have any comments or questions,</p><p>Elizabeth ChuHead of Investment, IP Global </p><p>A SHIFTING INVESTMENT STORY</p><p>London zones 1 and 2 undervalued post-recession</p><p>ZONE 2</p><p>ZONE 1</p><p>Price growth pushes demand outwards</p><p>ZONE 2</p><p>ZONE 1</p><p>ZONE 3 AND REGIONAL CITIES</p><p>Flight to affordability drives investors to Outer London and regional UK cities</p><p>2009</p><p>20132014</p><p>2010201 12012</p><p>20152016</p><p>FOREWORD</p><p>20172018</p></li><li><p>4</p><p>The UK, and in particular London, has emerged in the past ten years as one of the worlds leading markets for residential real estate investment. A strong and stable economy, an increasing population and a systemic housing supply shortfall have driven up prices, particularly in the capital. </p><p>Whether measured against the performance of other world property markets or the performance of traditional investment assets, property in London and the UK has become the favoured asset for those seeking steady, sustainable growth over the medium-to-long term. </p><p>A LOOK BACK</p><p>UK MARKET OVERVIEW2005-2015</p></li><li><p>Property is one of the most secure and reliably-performing asset classes. Within this sector, residential real estate is often an under-exploited investment segment among traditional high-net-worth investors.</p><p>House prices around the world are currently growing at their fastest rate since before the global financial crisis, with average price growth hitting 3.7% in 2015, up from a low of -4.6% in 2009.</p><p>House prices in the UK moved back into positive growth territory in 2013, growing by 14.9% over the course of 2014/2015. This represents an acceleration that has firmly justified the confidence of investors who continued to pour capital into the UK property market in the wake of the recession.</p><p>The UK is part of a small selection of global property markets that have earned the status of safe haven among international property investors. The national economy has proven itself to be resilient and investors are rightly confident in the UK property markets capacity to deliver steady rewards with a comparatively low level of risk.</p><p>THE WORLDS LEADING ASSET CLASS</p><p>STEADYREWARD</p><p>The steady upward performance of the London property market over the past decade illustrates the stability of property over more traditional, and often more volatile assets such as stocks, bonds or commodities.</p><p>In the wake of the financial crisis, London property dipped less and rebounded more quickly than other asset classes. The </p><p>COMPARING ASSET CLASSES</p><p>market subsequently recorded steady growth to surpass it's previous high-point as early as 2012.</p><p>Meanwhile, commodity prices sank to their lowest levels in over a decade in 2015, while the FTSE 100 has only recently returned to its pre-financial crisis levels and is currently declining. </p></li><li><p>8</p><p>While UK residential property has performed well in recent years, Londons performance has been even more impressive,with average property pricesrising at twice the national rate.</p><p>CAPITAL OUTPERFORMANCE</p><p>2006</p><p>63.6%LONDON PROPERTY</p><p>2016</p><p>Steady capital growth, with London leading the charge</p><p>19.3%UK PROPERTY</p><p>LONDON</p><p> 7-year CAGR </p><p>7.3% per annumTotal return 2009-2015 </p><p>63.6%</p><p>England &amp; Wales7-year CAGR</p><p>2.6% per annumTotal return 2009-2015</p><p>19.3%Source: Land Registry UKCAGR: Compound Annual Growth Rate</p><p>Source: Land Registry UK</p></li><li><p>This strong historic performance has turned London into the worlds second-most expensive housing market, behind only Hong Kong and now significantly ahead of third-placed New York. While the natural ebb and flow of market trends will no doubt influence this ranking in the years ahead, it remains highly unlikely that London will lose its position near the top of the table.</p><p>Yields on the rise?</p><p>This price escalation has been so extreme that the government has enacted several measures over recent years in an attempt to curb it and encourage first-time buyers, such as a Capital Gains Tax for foreign investors and the more recent implementation of a 3% Stamp Duty Land Tax surcharge for buy-to-let properties and second homes.</p><p>THE LONDON PREMIUM?</p><p>While at first glance these may appear to be contrary to investor interests, we believe these measures to be good for the long-term sustainability of the market. Furthermore, they may also drive yields up as landlords offset their higher taxes by raising rents. </p><p>Ripple effect</p><p>London housing remains one of the worlds most attractive </p><p>10 Most Expensive Residential Markets (Average Property Price in USD per square foot)</p><p>HONG KONG$1,411</p><p>LONDON</p><p>$1,025NEW YORK</p><p>$842PARIS</p><p>$827EDINBURGH</p><p>$512ROME</p><p>$528MILAN</p><p>$549LOS ANGELES </p><p>$671TOKYO</p><p>$771SINGAPORE</p><p>$817</p><p>Prices converted from GBP to USD. Exchange rates as of Q2 2015. Source: CBRE Living: A City-by-City Guide, 2015.</p><p>asset classes, continuing to record steady capital growth in spite of record-high prices. However, the search for value and affordability beyond prime central London is becoming increasingly important for investors.</p><p>In searching for affordability and future growth potential, investors have more recently focused </p><p>For the average Londoner:</p><p>26years to save a 10% deposit</p><p>of monthly salary is spent on rent</p><p>61.5% </p><p>on specific locations that present pockets of value. Created by strong micro-economies, regeneration and infrastructure investment and localised population growth, these narrowly defined parts of the city, typically found in Zones 3 and beyond, will continue to redefine property investment in London in the next few years.</p></li><li><p>12</p><p>The following pages reveal the performance of IP Globals London Portfolio of forty-five projects launched between 2009 to 2013. The analysis is based on current indicative value data provided by Savills in April 2016, who undertook an independent study on our behalf using market evidence on comparable properties. For the purposes of this report we have focused on those projects that IP Global </p><p>ABOUT THIS ANALYSIS</p><p>IP GLOBALLONDON PORTFOLIO ANALYSIS2009-2013</p><p>launched between 2009 and 2013 so that our analysis is based on a minimum three-year hold period and there is sufficient data to analyse the performance. </p><p>The results are based on an assessment of indicative values for average unit types within a project, rather than on valuations of specific units.</p></li><li><p>TOP 10IP GLOBAL PROJECTS</p><p>THE FILAMENTSWANDSWORTH / SW18</p><p>2012</p><p>ANNUAL TOTAL RETURN</p></li><li><p>1716</p><p>ANNUAL RETURN ANALYSIS</p><p>The benefits of leveraging</p><p>Those who used leverage i.e. borrowed money to finance their IP Global investment during the analysis period, were not only able to purchase more property than they could otherwise afford. They also benefited from the leverage effect, which saw their returns magnified on average by up to 2.7 times. Leveraging works best for long-term investments with stable annual income.</p><p>Average annual total returns by 3 and 7-year holds:</p><p>1. LEVERAGED VS UNLEVERAGEDWe identified London as a market that was undervalued in the wake of the global financial crisis, and launched our first investment in the city in 2009.</p><p>AT A GLANCE</p><p>* Annual total return: capital appreciation + gross rental yield (at launch) **Based on a 70% LTV and 3.6% interest rate, capital appreciation only</p><p>IP Global's 2009-2013 London portfolio performance:</p><p>45 developments</p><p>805units</p><p>GBP383 million total investment</p><p>11.4%Average annual total return* across all projects:</p><p>29.5%leveraged**</p><p>4.6%average rental yields at launch</p><p>GBP499 million current indicative value</p><p>unleveraged</p><p>2.7x the leverage effect (on average)</p><p>11.6% for 3-year hold</p><p>12.3% for 7-year hold</p><p>30.3% for 3-year hold</p><p>32.8% for 7-year hold</p><p>UNLEVERAGED </p><p>LEVERAGED</p><p>GBP116 million total capital appreciation</p><p>21.4%**2-bedroom units grew the most</p><p>IP Global London Portfolio Analysis 2009-2013 IP Global London Portfolio Analysis 2009-2013</p></li><li><p>18</p><p>With significant capital appreciation comes yield compression in the UK, particularly in London. This has meant that rental income has taken on more of a supporting role to capital appreciation in terms </p><p>4. RENTAL YIELD PERFORMANCE</p><p>of overall returns. During the period of analysis, we saw stable rental income backed by low vacancy rates across our portfolio, consistently providing on average 4.6% rental yields.</p><p>Our investments in London Zones 1 and 2 between 2009 and 2013 performed particularly well. Average annual growth of Zone 1 properties was 20% across a sample size of 355 units, while average annual growth of Zone 2 properties was an even more impressive 26% across a sample size of 299 units.</p><p>2. PROPERTY LOCATION</p><p>3. PROPERTY SIZE</p><p>Over the course of the period analysed, average annual leveraged capital growth was greatest for two-bedroom properties, with growth recorded at 21.4%. One-bed properties performed similarly well over this period, with growth recorded at 20.7%.</p><p>Although the lower capital growth recorded for three-bed properties reinforces our strategy of focusing our investments on one-bed and two-bed apartments, the average 19.8% recorded returns for three-bed properties shows that these assets also deliver a high capacity for investment returns.</p><p>INVESTMENT RETURN ANALYSIS</p><p>IP Global London Portfolio Analysis 2009-2013</p><p>A number of cooling measures, </p><p>including stamp duty hikes, have </p><p>impacted UK buy-to-let investors </p><p>in recent months. These levers </p><p>are intended to support first-time </p><p>buyers onto the property ladder </p><p>but may have the effect of driving </p><p>up rental yields as landlords pass </p><p>on these costs to renters.</p><p>YIELDS ON THE RISE?</p></li><li><p>20 21</p><p>INVESTMENT HOTSPOT: ISLINGTON</p><p>The borough of Islington was one of the first areas of London we identified for investment. This previously undervalued area has been transformed into one of the capitals most fashionable suburbs over the last decade, and IP Global investors were among the first to benefit from the high levels of property price growth recorded in the area over this time. </p><p>Islington Price Growth</p><p>House prices in Islington dipped slightly after the pre-recession peak of 2008, regaining their former value within only two years. The Islington Borough Price Index has been rising steadily since mid-2009, gaining 62% by early 2016. This compares to prime central London average growth over the same period quoted at 28%. [source: Land Registry]</p><p>The current annual price growth rate for Islington is 3.6%, and further growth of 10% is forecast through 2020. [source: Savills]</p><p>ELMORE STREET Launched November 2012</p><p> 12 units</p><p> Affordable at GBP640 per square foot</p><p> 18% 53% Success factors: 10 minutes walk to bustling Upper Street 5 minutes from Essex Road station Unique, quirky glass factory conversion well suited to local renters and purchasers</p><p> Total investment GBP4.2 MILLION Current indicative value GBP6.4MILLION</p><p>2009-2013 Islington portfolio performance at a glance: </p><p>10developments</p><p>Success factors: </p><p>Investment Hotspot: Islington Investment Hotspot: Islington</p><p>PEGASO Launched August 2009</p><p> 45 units</p><p> Affordable at GBP447 per square foot</p><p> 19% 54% Success factors: </p><p> 5 minutes walk from the Northern Line at Old Street Station 10 minutes from trendy Hoxton Square Cass Business School easily accessible</p><p> Total investment</p><p> GBP15.6 MILLION Current indicative value</p><p> GBP30.3 MILLION</p><p>annual unleveraged total return</p><p>Pegaso, one of our first UK investments</p><p>Elmore Street, glass factory conversion</p><p>Excellent </p><p>TRANSPORTlinksFantastic </p><p>QUALITYof life</p><p>POPULAR withPROFESSIONALS </p><p>Previously </p><p>UNDERVALUEDCLOSE to the CITY</p><p>annual leveraged total return</p><p>annual unleveraged total return</p><p>annual leveraged total return</p><p>13.5%average annual leveraged total return36.6%</p><p>average annual unleveraged total return</p></li><li><p>23</p><p>PART</p><p> 3</p><p>The past seven years have seen our UK investment strategy focus on opportunities in prime Central London and city fringe areas such as Mayfair, Fitzrovia and Islington. In recent years we have begun to shift this strategy in response to market pressures that have overheated the central London market and reduced potential for investment return in parts of the city that had previously offered good value.</p><p>This refocusing of our UK strategy began as early as 2012/2013, and since then we have continued to identify and secure investment opportunities for our clients in Outer London hotspots such as Deptford, Sutton and Croydon, and more recently in regional cities such as Manchester and Birmingham.</p><p>Image Place holder</p><p>WHERE NEXTFOR IP GLOBAL? </p><p>RIPPLE EFFECT</p><p>Where Next for IP Global?</p></li><li><p>2524</p><p>OUTER LONDON:FLIGHT TO AFFORDABILITY?</p><p>INVESTMENT HOTSPOT: OLD GAS WORKS, BLOCK B, SUTTON</p><p>High demand in these Outer London districts is driving significant price growth across the citys commuter belt. Many Outer London boroughs, particularly those to the East and Southeast, are now expected to outperform prime Central London price growth.</p><p>This uplift is further enhanced in locations that will benefit from regeneration investment. As an example, areas such as Ilford and Woolwich, both on the eastern end of the forthcoming Crossrail line, have seen signi...</p></li></ul>