What is property?
Market size and structure
The total value of the UK commercial property market in 2008 was estimated at £529bn1, and the value of UK residential property was estimated at £3,905bn1.
In contrast, the total value of the equities market - as measured by the UK companies quoted on the London Stock Exchange - was valued at £1,288bn2
1 Source: National Statistics, and Paul Mitchell Real Estate Consultancy update of IPF report The Size and Structure of the UK Property Market
2 Source: National Statistics, London Stock Exchange
More information
Size of the Global Real Estate (RE) Market - see table
back to topThe structure of the property market is generally considered in terms of what the properties are used for. Having first divided the market between residential and commercial use, the commercial market then divides further into three core sectors: office, retail and industrial.
In addition, there are a number of smaller, specialist sectors, including leisure, healthcare, and student accommodation. Some sub-sectors also exist within the core sectors - for example, retail is often split between high street, shopping centres, and regional centres. The reason for grouping together properties that are used for similar things is to indicate properties whose investment performance and management requirements are likely to be similar.
However, property markets are also structured by other factors, such as location. For example, property in London is different from property in rural Scotland, and within London there are many different, smaller office markets, such as the City and the West End. The economic factors that will drive investment performance, such as the cost and availability of land to develop, and the level of local employment, are complex. Like any investment, they require a level of expertise in order to understand and value them effectively.
Finally, while the variety of residential properties and small commercial premises is limited (eg houses on new estates throughout the UK are likely to be similar), large-scale commercial properties, such as Piccadilly Circus or a regional shopping centre, are likely to be unique - and these unique factors will inevitably affect their investment performance.
Over recent years commercial property investors, just like other investors, have looked to countries outside of their own for opportunities.
These opportunities include:
- Investing in faster-growing economies
- Buying into different, and therefore diverse, economic cycles
- Applying know-how and expertise gained in one country to countries whose economies are possibly less developed
- Buying into larger economies where there is less competition within a limited commercial property market.
The move towards property being seen as a global marketplace has come about through countries opening up to allow foreign ownership of property, through the growth of common investment vehicles such as REITs, and through international reporting standards. The latter enable investment performance in one country to be compared with that of another, and can be quite basic. For example, for a property company to be included in the FTSE / EPRA / NAREIT global index, it must publish its report and accounts in English.
The growth of global property funds that invest in property companies, rather than in direct property, has been another important factor. It means it is cheaper, quicker and simpler to buy the shares of, say, a quoted Japanese property company than, say, a number of actual office blocks in Tokyo.
There are still some countries where non-domestic investors find it difficult to enter the market, but there is no doubt that global property investment is one of the key trends of today, and a key opportunity of the future.
More information
Size of the Global Real Estate (RE) Market - see table
The global property market is primarily focused on commercial rather than residential property, although residential investment opportunities do exist in a number of specific markets.
The core sectors of office, retail and industrial apply across all countries, together with the sub sectors previously mentioned. Of course each country has specific characteristics and often has unique sub sectors, such as the Wine REITs in the US.
The global property market is also divided into continents and into developed and emerging markets. Again, this categorisation is intended to group together property markets by likely investment performance, but the specific nature of local markets and the unique characteristics of major commercial properties must be always be borne in mind.
A further factor to be considered is the continued dominance of the US in global property markets. The US comprises about 50% of the global commercial property market. This reflects not only the absolute size of the US market but, as importantly, the amount of property that is available to investors, particularly in comparison to those countries that are difficult to enter or effectively closed to non-domestic investors.
