Tim



SPR Newsletter July 2007

Forthcoming Conference – IPD RealWorld, organised in association with SPR

19th-20th September, Keble College, Oxford

Appraising the appraisals: property models laid bare

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“In an increasingly hectic conference schedule, RealWorld is the only one in which academics and commercial researchers work hand-in-hand to explore the key issues in property investment”.

Nick Tyrrell, JPMorgan Asset Management

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RealWorld once again promises to be the major event in the property calendar for addressing key research issues. And as always, the SPR has played a leading role in structuring the event.

This year's programme will provide an in-depth evaluation of the variables used in appraising individual property assets.

It will incorporate case study material to see how inputs from the real world affect appraisal outcomes.

The main topics to be covered will be:

Forecasting rental values

Building in depreciation

Projecting exit yields

Setting required rates of return

Modelling risks in cash flows

Speakers include:

Paul Kennedy, INVESCO

Andrew Smith, Arlington

Neil Crosby, University of Reading

Mark Callender, Schroders

Nick Tyrrell, JPMorgan

Michael Haddock, CB Richard Ellis

Malcolm Frodsham, IPD

Peter de Haas, Protego

Ray Adderley, Henderson

To book please contact Becci Elson at IPD: becci.elson@

Contents of this Newsletter

Click on Titles to Find the Article that interests you:

Recent Events:

Research Meeting

The Outlook for Property and the Economy

Site Visit, Scotland

Edinburgh Quartermile Site

Research Briefing

REITs

Debating New Research

Natural Vacancy Rates

Social Events

SPR Quiz Night

SPR Summer Drinks

Coming Events:

Site Visit

Kings Cross Development, 19th July

Social Events

Softball Social Evening, 26th July

SPR Salary Survey - headlines

This newsletter is edited by Tim Horsey. Please send any comments or suggestions to timhorsey@

Recent Events

Research Meeting

The Outlook for Property and the Economy

Office rents to drive continuing UK bull market into 2007

The traditional joint SPR/IPF Outlook for Property and the Economy meeting was held on 24th January at offices of JP Morgan in the City.

Robert Houston, Chief Executive of ING Real Estate, predicted a continuation of healthy returns for UK commercial property. But unlike 2005 and 2006, when returns close to 20% per year were mainly driven by falling yields, he suggested that in 2007 rental growth would take over as the driving force behind the market. ING’s November 2006 survey had shown 65% of investors choosing offices as their favourite UK sector – the highest level of approval since the survey started in 1990. He felt this reflected strong confidence in the ability of Central London offices in particular to deliver over the next 2-3 years, and not just in 2007.

According to ING’s research the continued popularity of property amongst UK investors does not depend on performance reaching the heights of the last two years, as most would now be happy with 7-8% over the medium term. But Houston thought that those aiming to beat ING’s overall UK forecast of 11.4% for 2007 might be tempted to move into alternative property types, developments and continental Europe. Europe is looking attractive to the majority of UK investors, mainly because most continental markets are a few years behind the UK in their property cycles.

Despite the strength and popularity of property as an asset class going into 2007, UK REITs may find it a challenge to attract private client investor interest, according to Robert Fowlds, Managing Director for Corporate Finance at Cazanove. He suggested that the low dividend yields being offered by most UK REITs might be insufficient to attract private investors, who require yields of around 5%. UK-REITs will have to demonstrate strong total returns and in particular gain interest from the Global REIT funds. The challenge for all UK-REITs, both existing and proposed, is to establish an ‘accretive business model’ in the current environment of lower property yields and higher borrowing costs. REITs which are able to offer an attractive dividend yield and an accretive acquisition policy should generate good investor interest, but those which struggle to meet these criteria may find growing competition from REITs in Europe (for example when G-REITs are introduced later this year) where the arbitrage of property yields over cost of borrowing may be more compelling than in the UK.

John Greenwood, Chief Economist at Invesco reinforced the positive outlook for property by emphasising the generally benign phase through which UK economy is currently passing, despite the likelihood of two or three further interest rate rises through 2007 as a response to continuing inflationary pressures. He believes the long-term prospects for property remain strong, even if the market has now come off its peak. Occupier markets look favourable with both retail spending and business profitability appearing resilient.

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SPR in Scotland – Visit to Quartermile Site, Edinburgh, November 2006

Back on a cold and windy night in November a group of 13 SPR members based in Scotland met for the first time for a tour of the Qmile development in Edinburgh, on the site of the old Royal Infirmary.

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The meeting had two purposes: initiating closer links between researchers north of the border and providing a view of the redevelopment of a considerable chunk of central Edinburgh real estate. The 19-acre Victorian hospital site is being transformed into a mixed use neighbourhood comprising residential, office, retail and leisure elements. Colin MacPherson of Gladedale Capital was our host and he gave us a fascinating insight into the complexities of the development, followed by a tour.

In standard SPR fashion we then retired to a local pub where we had a number of drinks and some nibbles. So successful was the get together that we have already had another event, hosted by GVA Grimley in April, and the next event is in the pipeline. I think all would agree that these events have filled an important gap for the research community and have strengthened the spirit of property research in Scotland.

Vicky Law, Scottish Widows Investment Partnership

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Research Briefing

UK REITs

The first of the SPR’s new series of research briefings was held on Tuesday 27th March and kindly hosted by Grosvenor. Some 50 researchers filled the room to capacity.

These briefings are geared to keeping property researchers up to date with key developments in the business. For each topic, chosen on the basis of its importance in the current market climate, they provide a concise introduction to the basics that property researchers need to know.

This briefing followed the introduction of the REIT structure in the UK at the start of the year, and featured presentations by Derek Williams, Senior Research Analyst for the Russell Investment Group, and Leonard Geiger, Director of European Research at Cohen & Steers.

Derek Williams gave an introduction to the REIT vehicle, explaining its tax advantages, and went on to examine the role that it can play as an investment asset. He looked at the key questions of risk and return, and in particular REITs’ combination of property and equity performance characteristics. He also focused on the globalisation REITs and the various ways in which specialist REIT managers have come to construct their portfolios.

Leonard Geiger provided more detail on the specific structure of UK REITs and the conditions that have to be met by managers setting up these vehicles or converting from prior listed status. He examined the kinds of fund which have converted in the UK and suggested ways in which this market is likely to develop over time – for example with the coming of more specialised entities.

The meeting was chaired by Nick Mansley of Morley.

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Debating New Research

Natural Vacancy Rates

The objective of this new series of SPR events is to develop the enthusiasm which clearly exists within the society for discussing research ideas amongst groups of peer professionals. On each occasion a piece of recent research is discussed in an informal setting.

In the first of these meetings, hosted by PruPIM on 18th April, leading property researchers discussed recent and innovative research on Natural Vacancy Rates in Global Office Markets. This research, by Ben Sanderson of PRUPIM, Kieran Farrelly of Seven Dials Consulting and Corin Thoday of RREEF, had been initially presented at the previous ERES Conference.

The report investigates the relationship between rental growth and vacancy rates in some of the world’s major office markets.

Ben Sanderson began by presenting the key methods and findings of the report. The concept of a natural vacancy rate above which rental values fall, and below which rental values rise, was found to be valid empirically in most markets, though it was also found to vary over time. The study estimated 60 regional and local natural vacancy rates and analysed the reasons for differences – such as transparency, wealth and lease lengths. Market GDP growth and wealth per head, and building value on completion were found to be significant causative variables, while perhaps surprisingly, market transparency and lease lengths did not seem to be significant.

Sotiris Tsolacos of PPR responded on the report methodology, and was accompanied on the panel by Paul Mitchell of PMRECon and Fergus Hicks of JLL. They were followed by a searching discussion with the audience which explored issues such as the comparability of this research with labour market research, the effects of different planning regimes, and the relevance of the level of employment density.

The event was well and enthusiastically attended – and more will follow soon along similar lines.

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Recent Social Events

SPR Quiz Night, 15th March

The annual quiz evening once again proved to be a keenly fought contest, with more than 20 teams entering in search of trivia-based glory.

The quiz was won by the Nick Tyrell (JP Morgan) – Paul Kennedy (INVESCO) invitation team, which also included Kim Politzer, Julia Felce, James Roberts and Luke Powell. This team also came a close second in the previous year. Suggestions that it should be broken up for future contests have been rejected. “Our next target is 100 points, and then, who knows,” commented the irrepressible Dr Kennedy.

The competition took place at the City Flogger pub in London. This is now undoubtedly one of the society’s most popular social events, so remember to enter your team early if you want to take part next year.

SPR Summer Drinks, 5th July

Despite the inclement weather, the Annual SPR Summer Drinks by the Thames was again very popular. Around a hundred members attempted to keep dry under the canopied terrace of Kwan Thai at the Hayes Galleria. The event was sponsored for the first time by Cobalt Recruitment, who ensured that the drinks and canapés continued well into the murky evening.

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Coming Event

Site Visit

Kings Cross Development, London, 19th July, 4pm

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There has recently been much press the excitement surrounding the King's Cross area.  This has been primarily driven by Argent, who are about to start one of the largest city centre regeneration projects in Europe, at King's Cross Central.  There are also many other developments and infrastructure changes planned for the next few years. 

Drivers Jonas have been very active in King's Cross and the surrounding area and recently hosted a seminar at the British Library at which they talked through the huge potential of the area.  As a follow up to that they are now running a short tour of the area for the SPR.

The tour will be led by Stephen Peers, Head of DJ West End Agency and King's Cross specialist and Anthony Duggan of DJ Research.  It will also include a visit to the Argent model of the King's Cross Central scheme at Regeneration House and an opportunity to pose any questions to Robert Evans of Argent.

Coming Social Event

Softball Social Evening, 26th July

The SPR will be holding a Softball Social Night in Hyde Park, from 6pm ‘til dark on 26th July.  As at the time of going to press, players are still needed - no experience necessary! Drinks will be provided during the contest to help loosen up your swing. The evening will conclude at a local pub.

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SPR Salary Survey 2007 - Headlines

• More than 200 SPR members responded to the Salary Survey in 2007, the largest number ever.

• The average basic salary of property researchers in £54,000 - 20% higher than the average at the last survey which was conducted in 2004.

• The median basic salary is rather lower at £45,000 – reflecting a number of very well-rewarded SPR members towards the top end of the scale.

• As one would expect, older SPR members generally have higher salaries. The range of salaries is tight amongst younger researchers but wider amongst those who are older.

• Researchers working for financial institutions are on average better paid than those working for property advisors.

• 86% of property researchers receive an annual bonus, which on average is worth £16,400.

• Almost three-quarters of researchers believe that they are fairly remunerated, well up on the previous two surveys when the average was less than two-thirds.

• High earners generally also benefit from more annual leave – with an extra 0.7 days holiday for each extra £10,000 earned.

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