Worth more than the Crown Jewels

January 27, 2016 admin

Tower of LondonIt’s always nice to have your small part in the commercial real estate world confirmed. The British Property Federation, the trade association for the United Kingdom’s property sector, recently released a report, commissioned from Toscafund Asset Management LLP and titled Britain’s Property CREdentials, that highlights the role played in the U.K. economy by commercial real estate, defined as any property whose main function is to generate income for its owner.

Commercial real estate, the report states, represents assets valued at £1.662 trillion ($2.375 trillion) in total, or more than a fifth of total net U.K. wealth. Other stark reminders of the role of commercial real estate are that the sector contributed £94.2 billion ($134.6 billion) through rental payments to U.K. GDP in 2014 (representing about 5.4 percent of GDP), that an average of 6.8 percent of the U.K. labor force (2.1 million people) was employed on construction work between 2002 and 2014, and that more than 7 million U.K. citizens have retirement income that is linked directly to the fortunes of the commercial real estate sector.

Institutional investors such as pension funds, the report says, invest in the commercial real estate sector as they are attracted by the stable, long-term income and flexibility it offers. (Some £41.9 billion [$59.9 billion, or 44.5 percent] of the contribution to U.K. GDP mentioned above is attributable to market rent from private rented housing.)

The report is part of the BPF’s efforts to show the U.K. government the role real estate plays in society and to ensure the sector “is subject to fair and appropriate regulation and taxation.” Commercial real estate, the report says, “is intrinsic to our lives and businesses,” “encompasses everything from transport and infrastructure to universities and private rented housing” and plays an important role “in creating sustainable communities and supporting every type of business activity.”

BPF CEO Melanie Leech comments:

“Many people associate commercial property with offices or shops but, as we can see in this report, it is so much more than that. It is your doctor’s surgery, your child’s university accommodation, the train station that you go to every morning.”

Sustainable communities, Leech continues, need a balance of both commercial and residential property:

“Given the substantial contribution that commercial real estate makes to the economy, to jobs, to regenerating our towns and cities, as well as the security that it provides us through pension investment, it is in any government’s interest to promote investment in this sector through appropriate regulation, support and fair taxation.”

The U.K. government has a continuing public debt and budget deficit problem and needs the money. The BPF report cautions against it seeing the commercial real estate sector as an easy tax target. Savvas Savouri, chief economist at Toscafund Asset Management and one of the report’s authors, adds:

“Commercial real estate takes on varied and economically-valued forms across all of the United Kingdom, and it would be no exaggeration to say that the fortunes of the U.K. economy turn on a well-functioning commercial real estate market.”

And the crown jewels? They are worth a mere £18 billion ($25.7 billion).

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RichardFlemingRichard Fleming is editor of Institutional Real Estate Europe.

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