slater heelis property seminar 8 july 2010 - bnp paribas

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


Distribution’s late recovery doesn’t help enough

-2 0 2 4 6 8

Standard shop

Shopping centre

Retail warehouse



Rest of UK offices

Standard industrial


annualised %

2005-9 2010-14


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


But the collapse in some markets takes time to repair

-10 -5 0 5 10

Standard shop

Shopping centre

Retail warehouse



Rest of UK offices

Standard industrial


annualised percent change

2005-9 2010-14


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