slater heelis property seminar 8 july 2010 - bnp paribas
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1
Where now for property?
Manchester
Andrew Hamilton
The North suffers most in the recession
-1 0 1 2 3 4
Greater London
South East
East of England
South West
East Midlands
West Midlands
North West
Yorkshire & Humber
North East
Scotland
Wales
GVA annualised change %
1999-2004
2004-2009
Source: Experian
Rental value loss in 2009 – historic comparison
-30 -20 -10 0 10 20
Retail
Office
Industrial
All Property
cumulative percent change
2004-08 total 2009 1992
Source: IPD UK Annual Property Digest 2009
Rental value loss in 2009 – historic comparison
-30 -20 -10 0 10 20 30
Standard shop
Shopping centre
Retail warehouse
Central/Inner London offices
South Eastern offices
Rest of UK offices
Standard industrial
Distribution warehouse
cumulative percent change
2004-08 total 2009
Source: IPD UK Annual Property Digest 2009
Broad recovery in take-up across the regions
0
100
200
300
400
500
Birmingham Bristol Edinburgh Leeds Manchester
sq f
t 00
0s
5 year average 2009 average Q1 2010
Source: BNP Paribas Real Esatte
Recovery favours South
-15 -10 -5 0 5 10
Greater London
South East
East of England
South West
East Midlands
West Midlands
North West
Yorkshire & Humber
North East
Scotland
Wales
FBS employment total change %
2007-09
2010-12
2013-15
Source: Experian
Distribution take-up varied widely between regions
0
1
2
3
4
5
6
7
8
9
10
London &SouthEast
M27Region
SouthWest
Midlands NorthWest
Yorkshire& The
Humber
NorthEast
Scotland SouthWales
Ta
ke
-up
sq
tf
mill
ion
s
Take-up
BNP Paribas Real Estate
A good recovery for rents
-1 0 1 2 3 4 5 6
Retail
Office
Industrial
All property
annualised %
2005-09 2010-14 Average for 5-year periods
BNP Paribas Real Estate
Distribution’s late recovery doesn’t help enough
-2 0 2 4 6 8
Standard shop
Shopping centre
Retail warehouse
Central/Inner London offices
South Eastern offices
Rest of UK offices
Standard industrial
Distribution warehouse
annualised %
2005-9 2010-14
BNP Paribas Real Estate
Values still lie well below the long run trend
100
120
140
160
180
200
220
240
87 89 91 93 95 97 99 01 03 05 07 09 11
Ind
ex o
f ca
pit
al v
alu
es
Index Trend line
Source: IPD, BNP Paribas Real Estate
December 2002October 1989
Office values recover sharply - helped by London
-5 0 5 10
Retail
Office
Industrial
All property
annualised percent change
2005-09 2010-14 Average for 5-year periods
BNP Paribas Real Estate
But the collapse in some markets takes time to repair
-10 -5 0 5 10
Standard shop
Shopping centre
Retail warehouse
Central/Inner London offices
South Eastern offices
Rest of UK offices
Standard industrial
Distribution warehouse
annualised percent change
2005-9 2010-14
BNP Paribas Real Estate
Points to remember
Tough economic recovery will act as a drag on rental recovery
Capital markets will run out of steam in 2011
Hot Properties
HOUSING
Housing Delivery
• Planning
• Land Supply
• Affordable Housing
• Finance
Nominal House Price Growth
UK NorthYorks& Hmber
North West
East Midlands
MidlandEast
Anglia
Rest of South East
Gtr London
South West
Wales ScotlandNorthern Ireland
1999 9.1% 3.3% 4.8% 6.3% 7.6% 7.0% 7.5% 10.6% 10.9% 10.6% 6.0% 3.6% 10.4%
2000 13.0% 4.8% 5.8% 6.4% 11.0% 10.7% 15.6% 19.1% 18.9% 16.6% 8.3% 4.6% 12.5%
2001 10.5% 8.4% 9.5% 10.5% 11.7% 11.1% 14.2% 11.7% 10.1% 11.9% 9.0% 3.0% 8.0%
2002 19.8% 19.3% 22.8% 18.7% 23.9% 21.5% 23.1% 22.0% 18.2% 24.5% 18.9% 13.0% 9.2%
2003 19.6% 32.4% 27.5% 24.0% 25.3% 22.6% 17.8% 18.9% 14.5% 18.6% 26.2% 14.8% 11.3%
2004 16.6% 29.5% 25.5% 27.0% 18.4% 16.8% 14.3% 11.9% 8.9% 15.4% 31.5% 22.5% 15.1%
2005 5.4% 5.3% 8.2% 7.8% 4.1% 4.6% 3.8% 2.1% 3.7% 3.9% 6.0% 10.4% 12.8%
2006 6.5% 2.7% 6.0% 4.7% 3.3% 3.3% 5.3% 5.1% 9.7% 5.3% 5.3% 13.0% 30.5%
2007 8.9% 5.5% 5.1% 4.7% 5.1% 4.9% 7.3% 9.1% 12.6% 8.4% 5.8% 13.0% 43.1%
2008 -6.8% -5.3% -7.4% -7.3% -7.4% -7.1% -7.9% -6.9% -5.9% -7.4% -7.0% -2.2% -22.0%
2009 3.37% -2.05% 2.72% 2.74% 2.55% 22.09% 4.46% 4.68% 7.16% 3.84% -0.20% 1.09% -6.89%
2010 3.30% 2.63% 3.11% -1.28% 2.75% 2.11% 3.94% 7.73% 2.84% 8.45% 8.31% 6.78% 6.17%
WASTE
The property implications
Every day Britain throws away
Source: WRAP & The Independent
1.6 M
Bananas
5,500
Chickens5.1 M
Potatoes1.3 M
Yoghurts
220,000Loaves of Bread
660,000
Eggs
1.2 M
Sausages
Waste Management across Europe
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Recycled Incinerated LandfilledSource: Eurostat
EU Landfill Directive
EU landfill tax: 2009 £40 per tonne, 2013 £72 per tonne.
EU Landfill reduction targets By 2010 - 75% of 1995 levels By 2013 - 50% of 1995 levels By 2020 - 35% of 1995 levels
The Landfill Allowance Trading System (LATS) Landfill reduction targets for local authorities set by central government Local authorities fined £150 for every tonne they exceed target
The Perfect Storm?
• Legislatively Driven EU Landfill Directive WEEE Directive Waste Incineration Directive
• Increase Energy production to sustainable sources 20% of UK electricity from renewables by 2020 Waste as a carbon alternative
• Over supply of industrial and logistics property and land 138 million sq ft available in the UK
• Decreased rental values and reducing lease length
Property Opportunities
Opportunities for the property
sector
Waste Technologies grouped together into three Groups
Organic – including composting, anaerobic digestion
Dry Recycling – including primary segregation and secondary reprocessing
Recovery – including energy from waste
Outputs such as:
Gas
Oil
Charcoal
Electricity
Some technologies can be employed in existing buildings
Overview of Different Solutions
Waste sorting
Can be done in existing buildings
Materials Recovery Facility (MRF)
Energy from waste - Combustion
Pyrolysis & Gasification
Anaerobic Digestion
Composting
Mechanical Biological Treatment (MBT)
Materials Recovery Facility (MRF)
A MRF is a facility at which components of a mixed waste stream are extracted by the use of mechanical separation techniques
Revenue generated from sale of recovered items
Land Requirements 0.8 – 2 Ha
Capital Costs £200,000 - £40 million depending on operation complexity
Operating Costs £30 - £55 per tonne treated
Staff Levels 15 – 85 depending on complexity
SCA Recycling Southampton MRF
Combustion, Energy from Waste (EfW)
EfW facilities combust waste under controlled conditions, to generate electricity and/or heat.
Electricity generated from a 100,000 tpa facility is equivalent to the electricity usage of 10,000 houses
Source: Veolia
Land Requirements 2.5 – 3.5 Ha
Capital Costs £40 - £46 million for 100,000 tpa plant
Operating Costs £41 - £64 per tonne treated
Staff Levels Around 50
Pyrolysis & Gasification
Pyrolysis, gasification, is a thermal process where organic materials in the waste are broken down under pressure and in the absence of oxygen.
Allows for energy creation from waste
Photo Source: Biogen
Land Requirements 0.5– 1.75 Ha
Capital Costs £19 - £93 million for 100,000 tpa plant (process dependent)
Operating Costs Limited Data Available
Staff Levels 30 - 40
Anaerobic digestion (AD)
Anaerobic digestion (AD) is a method of waste treatment that produces a gas with high methane content from organic materials.
The methane can be used to produce heat, electricity, or a combination of the two.
Land RequirementsEstimated at 1 sq ft per tonne
processed.
Capital Costs £10m - £29m for 60,000 tpa plant
Operating Costs £28 per tonne processed
Staff Levels Dependent on unit size
Composting
Composting is a natural biological process in which organic material is broken down by the action of micro-organisms.
Outputs are sold into the agriculture industry, landscaping and even used in highway building
Land Requirements 5 – 6 Ha
Capital Costs £9 – 12 million for 40,000 tpa plant
Operating Costs£10 - £24 per tonne (hi tech)
£14 – £25 per tonne (low tech)
Staff LevelsSize and Technology
Dependent
Mechanical Biological Treatment (MBT)
MBT is a generic term for an integration of several processes found in other waste management processes.
The principle aim on MBT is to stabilise and separate waste stream into less harmful and more beneficial outputs which then go forward to another waste management process.
Land Requirements0.9 – 2 Ha for small facilities3 – 4 Ha for large facilities
Capital Costs £9 – 30 million for 60,000 tpa plant
Operating Costs £37.5 per tonne average
Staff LevelsSize and Technology
Dependent
UK Planning Environment
Planning is handled at a County level as opposed to District
Land use class varies, some classify as Sui Generis, others as B2 or B8
An environmental permit issued by the Environment Agency under Chapter 1 of Part 2 of the Environmental Permitting Regulations 2007
Exceptions include EfW projects that exceed 50MW of generation. These potentially can be “called in” by the Secretary of State
Deal Analysis- An Agency Perspective
Large amount of new and substantial enquiries
No “typical” deal
Tennant Size (sq ft) Location Terms
SCA Recycling 125,000 Southampton£7 psf12 year lease
Greenstar 190,000 Edmonton, London£7.85 psf15 year lease 9 months rent free
Biffa 208,000 Manchester£4.75 psf20 yearsL & G Spec build Trafford Park
Molecular Products 55,712 Harlow£7psf18 year lease
Cyclamax 360,000 Derby£5.50 psf25 year lease Goodman D & B
Site Serve Recycling 71,127 Cardiff£1 psf1 year lease
Environmental Waste Controls 67,862 Warrington 4.5 year lease
Recycled Carbon Fibre 62,000 Birmingham£2.80 psf10 year lease 5 year lease break
Biffa 237,000 Birmingham £.5.25 psf + incentives
Source: BNP Paribas Real Estate Research
The Property Opportunity?
Existing Stock Target MRF operators
Suitable Waste to Energy Operators
Development Opportunities Waste to Energy operators acting as anchor tenants
Reassign vehicle movements
Make remaining units/land more attractive to “traditional” tenants
Strategic land purchases
Joint ventures with Energy Providers
Investment opportunities Long term leases
Attractive to institutional investors
By 2015, nearly all MRF capacity is utilised and almost 60%
of areas have insufficient capacity, with a number of others close to capacityWRAP, MRF Capacity report, 2007
The property opportunity?
300 landfill sites could close and will need to be replaced by as many as
3,000 smaller sites.Biffa, Future Perfect, 2003
If the targets set out in the Landfill Directive are to be achieved there has to be a
rapid and exponential increase in facilities to process waste in other ways.RICS: Can the Waste Planning System Deliver, 2004
Conclusions
The Waste & Recycling industry is BIG Business.
Opportunities in the short term exist for MRF operations in existing buildings designed for logistics and distribution.
By 2015, the industry will require up to 50 million sq ft 6 ½ Magna Parks!
Longer term opportunities exist for investors and developers with large land banks
The industry has many local authority contracts, in certain cases the local authority leases the property. Potential for long and secure income
The ideal locations for many operations are at or close to “traditional” logistics centres
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