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Commercial property yields climb in 1H19 – Savills

Property specialist Savills’ latest Market in Minutes report has indicated that the UK’s average all-property yield has reached its highest level since November 2016 at 4.90 per cent.

Yields rose a quarter point across retail warehousing and leisure assets through July 2019.

The report also revealed that while investors are becoming increasingly active studiers of the UK market, particularly of the retail sector, transactional volumes remain low as they are largely waiting to strike at the ‘right’ price, although investment volumes in high street shops did tick up by 9 per cent in H1 2019 compared to H1 2018.

The main exception to the upwards trend of the last 12 months is the City of London office market, where prime yields hardened from 4.25 per cent in June to 4.00 per cent in July, supported by the sale of 8 Finsbury Circus, EC2M, to Singapore-based Stamford Land for £260 million.

Mat Oakley, head of UK and European commercial research at Savills, said: “The depth of interest and the prices we’re seeing being achieved on prime London assets indicates that there is a still a significant depth of demand for high quality commercial property. With these assets also continuing to deliver positive capital value growth, any further weakening of sterling in the second half of 2019 is likely to see additional demand unleashed and rising volumes. 

“There are also investors circling ready to buy distressed retail assets although the prices they’re willing to pay will have to be commensurate to the risks involved.”

London office investment to hit £5bn in 1H 2019

Overall investment into Central London offices could total £5bn for the first half of 2019, down 39% on the same period in 2018 when £8.1bn was invested by the end of the half year. 

New research from retail estate advisor JLL suggests that a third of all transactions in 2019 to date came from UK investors.

Discussing the findings, Julian Sandbach, Head of Central London Capital Markets at JLL, said: “Political uncertainty is continuing to impact investor confidence at present, and this is most acutely felt by institutional investors who are particularly cautious due to uncertainty and understandably, risk. The irony of the situation is that the reverse is being seen in the occupational market where the volume of space let in the first half of 2019 is forecast to reach 4.3m sq ft, only 6% below the 10-year average.”

The research indicated that occupiers continue to show long-term confidence in Central London, recognising it as a global business centre, with global operators committing to space in the first six months of 2019, including Facebook, Sony Music, G research, Glencore, Milbank Tweed, ERBD and Brewin Dolphin. 

“London has a dwindling supply pipeline and although many cranes can be seen across its skyline a number of these developments have been pre-leased, with broadly 48% of the buildings under construction already let to future occupiers,” said Dan Burn, head of City agency at JLL. 

“The squeeze is more acutely felt with 2019 product where 59% of speculative construction is now leased. In addition, as occupiers vie for the best space, there is a significant amount of space currently under offer, totaling 3.8m sq ft which we anticipate will push leasing totals for the year towards 10m sq ft, in line with 2018. Looking ahead, the low levels of speculative pipeline combined with the sustained occupier demand, will continue the upward pressure on rental growth, especially as the vacancy rate on brand new buildings is 0.5%.”

Sandbach continued: “Undoubtedly the health of the leasing markets will provide an underlying level of confidence to investors, albeit much of this capital is sitting on the sidelines awaiting further clarification on Brexit outcomes. In 2018 inward investment was heavily dominated by Korean and Singaporean capital and whilst we have seen Korean investment recede from London this year, due to concerns from the securities firms to sell down their positions, we are yet to see a new international capital source emerge. Instead we have seen enhanced numbers of private individuals and family offices become more active, particularly in the West End, as a result of a reduction in levels of competition and a less crowded market and for the first time in many years UK buyers have been more active than any other group.

“Whilst investment transactional volumes are down, pricing levels have not suffered and yields have remained firm. The ever-decreasing supply pipeline coupled with strong levels of pre-leasing has led to intense competition for development and refurbishment opportunities across the capital. There is strong appetite from REITs, development managers and property companies seeking to reposition assets that will capitalise on the robust occupier demand and low future supply with pricing being driven hard by the strong competition.

“Furthermore, with London prime yields at an average of 4%, the arbitrage available over prime European cities at 3% is plain to see and for best in class assets, strong competition still exists.”

Office design still harming worker productivity

The UK workforce are happier in their working environments than ever before, with more companies providing services to help deal with employee’s physical and mental well-being.

That’s according to the latest ‘What Workers Want’ report from property agency Savills.

However, the report also suggests that office design can still hinder working productivity, with almost a third polled (32 percent) saying that their workplace’s internal design/ layout decreases their productivity; this increases to 45 percent where people work for an employer with a hot-desking policy.

Savills says that despite hot-desking becoming common practice over the past decade, workers have seemingly not acclimatised to it – in 2016 only 31 percent said hot-desking decreases their productivity.

The report found a significant increase in workers reporting that their workplace is positively impacting their physical and mental health, with 39 percent agreeing that it positively impacts their mental health (up from 33 percentin 2016); 34percent said it positively impacts their physical health (up from 25 percentin 2016). 

According to Savills, this indicates that the message that the workspace can contribute to wellness seems to have been absorbed by companies and landlords, and that they are taking positive action to improve worker well-being.

36 percent of open plan office workers also thought that the space had a negative effect on productivity as opposed to 14 percent of private office workers. Noise levels were also important, with a massive 83 percent admitting it made a difference to them, up from 77 percent in 2016.

34percent of workers said that they’d been asked their views on their office environment by their current employee, opposed to 59 percent who had not.

“Overall, employers are heading in the right direction when it comes to the office,” said Steve Lang, director in Savills commercial research team and co-author of What Workers Want 2019. 

“More UK workers now say that they’re happier with their office than any other time when we’ve run What Workers Want, and there’s been a big improvement in physical and mental health in the workplace over the past three years, indicating that employee well-being and health are being taken seriously. However, the workplace is yet to nail the productivity issue: a significant minority of workers say their office actively harms their productivity, with many voicing concerns about noise and hot-desking.”  

Simon Collett, Savills head of professional services, added: “How the office environment can maximise productivity continues to be a major area of review. While developers, landlords and companies are taking steps to improve worker wellbeing, bringing forward intelligent design measures such as increasing natural light and including more plants, we have a conundrum where happier workers aren’t necessarily more productive workers. Noise levels have been reported as a major issue ever since we started What Workers Want, and they’re only growing in importance. While we’re never going to return to everyone having a private office, those fitting out open plan spaces need to look at acoustic solutions as a major part of the working environment.” 

Image by Michael Gaida from Pixabay

Global FM market will reach $2,127bn by 2027

The global facility management services market was worth approximately $1,314 billion in 2018 and is expected to generate around $2,127.4 billion by 2027, at a CAGR of around 5.5%.

That’s according to a new report by Zion Research, which says there’s increasing demand for integrated facility management owing to growing awareness regarding the benefits associated with its adoption.

Furthermore, the rising concerns regarding corporate social responsibility due to various legislative requirements to decrease ecological footprint is further expected to drive the facility management services market globally.

However, the reports cites a presence of unorganised players delivering low-cost services is restraining the facility management services market growth.

Based on facility management type, the forecast market value includes in-house, outsourced, and integrated. Integrated facility management is expected to show the fastest CAGR over the forecast time period, owing to the growing software need to achieve economies of scale.

By solution, the forecast includes integrated workplace management system, building information modeling, facility operations, and security management, facility environment management, and lease accounting and real estate management.

The facility operations and security management segment held a major market share in 2018, due to the rising software demand from various organizations to manage different operational areas, such as facility lighting, video surveillance and access control, HVAC, and emergency incident management.

Gen Zs and Millennials have high expectations of employer sustainability efforts

A survey by BRITA Professional of 1,000 Generation Zs and Millennials has revealed what they expect from employers when it comes to sustainable buildings and working practices. 

As reported by Tomorrow’s FM, the research indicates that 86 per cent would stay at a company longer if it reported how it was lowering its impact on the environment to staff. 

The research, published in BRITA’s ‘Life Is Better Filtered: Corporate School of Expertise’, report also included the top three CSR objectives that matter to both generations, with 46 per cent opting for environmentally-friendly buildings, 45 per cent admitting that health and wellbeing support, including mental health support made a difference and 36 per cent looking for charity partnerships to get involved with.

Design elements included quiet zones (52 per cent), hydration stations (31 per cent) and comfy seating areas (31 per cent).

Flexible working hours and locations were also a priority (50 per cent) along with honesty (46 per cent) and personal development investment and progression (44 per cent).

Discussing the findings, Sarah Taylor, MD of BRITA UK said: “Our research shows that Generation Z and Millennials are a force for change. They believe in living a more sustainable life and their day to day decisions will likely reflect this. It’s now up to businesses to reflect these expectations in the workplace. Get this right and you will be rewarded with a loyal, talented and productive workforce.”

CENTRICA REPORT: Future-Proofing Your Company’s Energy Needs

By Centrica

Every business relies on energy for critical tasks – but with this dependence comes risk.

As organisations seek to become more sustainable, it’s vital to plan not only for short-term energy needs, but also for long-term energy security.

Increasingly, businesses that are digitalising processes are becoming ever more dependent on power to run them, making it critical to plan effectively to reduce risks and ensure energy resilience.

Our new report, Future-Proofing Your Company’s Energy Needs, highlights rising awareness of resilience as an issue for organisations across the globe, and practical steps you can take to mitigate risk.

Click here to download the report.

Healthcare FM demand to hit $515.31bn by 2024

The global healthcare facilities management market is set for rapid growth, with a CAGR of 13.6% over the next five years.

That’s according to a new report from Zion Market Research, which says technological innovation in the sector, combined with increased demand from emerging markets, is driving the sector forward.

The research says North America is the largest consumer of healthcare FM among the geographies it covered, followed by Europe.

Meanwhile Asia Pacific will grow at the highest CAGR over the forecast period, at which point the global market will be worth $515.31 billion.

Zion identifies the key market players as Epic Systems Corporation, eClinicalWorks, Practice Fusion, NextGen Healthcare, Allscripts, Cerner and MEDITECH.

Integrated facilities management market worth $802.4bn by 2020?

The global market for integrated facilities management (IFM) is expected to grow at a CAGR of 7 per cent until 2020, according to a new report.

The forecast from Beroe, a procurement intelligence firm, says demand for FM outsourcing and the adoption of an IFM strategy signals an increasing buyer maturity and willingness to partner with suppliers.

APAC remains the fastest growing market for outsourced FM services and the progressive growth of major economies in the region such as China and India are expected to keep the demand high.

Moreover, the increasing levels of commercial property creation and construction are accelerating the market for outsourced FM services.

The Beroe report says one major driver of the IFM market is the improvement in economic conditions across developing countries and large scale industrial development such as construction and real estate.

Alternatively, the low level of awareness among buyers in developing markets about the opportunities offered by outsourcing FM services is a constraint in the industry.

However, Beroe cautions that the IFM industry is facing impediments globally and the situation seems to be critical with several top Tier-2 suppliers such as Serco, G4S, MITIE, Interserve and Carillion struggling to upgrade their services.

Tier 2 companies, meanwhile, are developing skills to provide a wide range of services to various sectors such as housing corporation, oil & gas, retail, hotels, and manufacturing.

Key Report Findings:

  • The major cost factors involving a global IFM model are labor and materials costs, which account for nearly 80 – 90 percent of the total cost.
  • IFM is the commonly used model in the food and soft drinks industry as integrating the services to one principal supplier will contribute to reducing costs, driving greater consistency, and alignment.
  • Programmed FM companies have launched an innovative service in the IFM industry called sustainable solutions, which caters to the conservation of energy, water, and emission.
  • Large buyers such as Unilever and Heinz have adopted and integrated their FM services with a single service provider, which has resulted in 10-20 percent in cost savings.
  • IFM and TFM sourcing models provide the best savings opportunity for consumers with minimal involvement in the process.

From robotics and wearable technology to IoT, the IFM industry is becoming more interconnected, and the suppliers are looking forward to utilising technology to drive productivity and achieve cost savings for the client.

Additionally, outsourcing to a single FM player would enable buyers to regulate the level of services across various locations, and the productivity and efficiency could be improved through the initiation of various KPIs and compliance clauses.

Contact cleaning sector receives boost ahead of Brexit

A new report on the commercial cleaning equipment market has found that sales showed above inflation growth in 2018, though manufacturers and distributors face several challenges and shifting product trends.

The 270 page report from MTW Research suggests the cleaning equipment market has increased by 15%, boosted by product development – particularly in the powered cleaning machine market.

Whilst Brexit represents a key threat to the cleaning equipment market in 2018, forecasts are positive with above inflation growth likely to 2022.

MTW suggest the Brexit transition phase should offer stability for the cleaning equipment market, though highlights varying product trends and growth across the market.

Powered cleaning machine sales will outperform the cleaning equipment market in 2018, representing the fastest paced sector of the commercial cleaning market equipment.

The hard floor cleaning machine market is exhibiting healthy growth, with volume demand in the vacuum cleaner market and pressure washer market positive in 2018.

The market for these products will exceed £300 million for the first time in 2018, exhibiting growth of more than 50% since 2012.

The report reveals a number of positive product trends within the powered cleaning market.

MTW Director Mark Waddy said: “Whilst price deflation remains apparent in the cleaning equipment market, manufacturers are successfully differentiating themselves and their products. Demand for high quality, user friendly cleaning equipment which enhances efficiency continues to underpin growth for the cleaning equipment market, offsetting the threat of lower priced imports.”

The report also reviews the cleaning chemicals market, finding that whilst demand is strong for ‘antibacterial’ chemicals and ‘deep cleaning’, opportunities for growth in the environmentally friendly chemicals sector are significant in 2018. Often perceived as being ‘safer’ for the cleaning contractor and the end user, ‘green’ chemicals and more environmentally friendly cleaning processes are likely to continue to grow share of the cleaning chemicals market in the longer term.

A focus on hygiene across the spectrum of end use sectors continues to underpin the cleaning chemicals sector, with manufacturers of cleaning equipment working more closely with chemical suppliers to offer enhanced cleaning solutions. MTW report a 30% increase in cleaning chemicals over the review period, with growth set to outstrip inflation to 2022.

European commercial outsourcing grew 5% to €3bn in 4Q18

The sourcing market in Europe, Middle East and Africa (EMEA) grew in the final quarter of 2018 despite unsettling macro-economic and political events across the region.

The EMEA ISG Index from the Information Services Group, which measures commercial outsourcing contracts with annual contract value (ACV) of €4 million or more, shows the EMEA market posted combined fourth-quarter ACV of €3 billion, an increase of 5 percent from the prior year.

This rise was bolstered by a 44 percent year-on-year increase in as-a-service ACV, to €1.3 billion, as strong demand for digital transformation remained an enterprise imperative.

Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS) in EMEA both performed strongly, posting ACV of €960 million and €331 million, respectively. Traditional sourcing, meanwhile, contracted by 12 percent year-on-year to €1.7 billion.

For the full year, EMEA reached €12.9 billion in ACV, up 9 percent against 2017. Traditional sourcing ACV of €8 billion was down 6 percent year-on-year, but as-a-service grew 48 percent to reach €4.9 billion.

The rise in as-a-service sourcing – which now accounts for 38 percent of total ACV for EMEA – continued to be driven by demand for SaaS and IaaS, both of which increased by more than 40 percent in 2018.

Steve Hall, partner and president of ISG, said: “Despite ongoing political and economic uncertainty in Europe and resulting business caution, companies are making significant investment in digital technologies to improve their ability to compete and to engage with their customers. This is a clear testament that the tailwinds of digital transformation are stronger than the headwinds of political and economic issues.”

Globally, fourth-quarter ACV for the combined global market grew 18 percent, to €9.8 billion. As-a-service ACV pushed to new highs in the fourth quarter, up 43 percent year-on-year, while traditional sourcing inched up 2 percent.

Declines in the UK, DACH and France pulled down the traditional sourcing market in 2018.

Full-year ACV in the UK fell by 27 percent, to €2.5 billion, despite a 5 percent increase in the number of contracts. The traditional sourcing market in the UK has slumped since the Brexit vote in June 2016. Prior to the vote, the UK averaged three €800-million quarters for traditional sourcing per year. Since the vote, only one quarter – the first quarter of 2017, which included the signing of some exceptionally large mega-deals – reached that mark.

Traditional sourcing ACV in DACH was down 4 percent in 2018, with a 19 percent drop in contract signings. The economy in DACH slowed in 2018 and fears of a recession have slowed decision-making. The UK Government defeat over the Brexit vote presents a further substantial economic risk to Germany, as well as the UK.

While UK and DACH companies are exercising caution in traditional sourcing decisions, both are increasing their investments in new technologies and as-a-service contracting to improve efficiency and meet consumer demand for new services and channels.

The results of unsettling economic and political factors also are evident in France, where traditional sourcing ACV edged down 3 percent, to €640 million, despite a steeper drop of 13 percent in contract volume. French consumers have turned to online shopping in recent weeks as the Gilet Jaune demonstrations spread, benefiting Amazon and other online retailers and potentially affecting the Retail sector in 2019.

In the Nordics, traditional sourcing was up 20 percent, to €1.1 billion, with the number of contracts growing by 14 percent. The smaller EMEA markets also showed strength with gains in Southern Europe, Africa/Middle East and Russia/Eastern Europe.