A report was submitted that provided an overview of the current property market and informed Members of the individual property transactions relating to the Fund.

In terms of the economy and real estate market, 2022 had been a year of two halves.  During the first half of the year there had been quite strong returns for real estate despite the energy crisis and rising inflation.  The second half of the year had been weaker with yields increasing and values falling in all property sectors.  Interest rates rising had made things difficult for debt backed buyers.  There had been some cyclical selling of real estate as investors tried to rebalance portfolios.  More recently there had been some structural changes mainly from defined benefit pension funds who were looking to reduce their exposure to real estate.  The number of transactions had reduced during the second half of the year and yields in November were below the long term trend.  There was an imbalance in the markets with sellers and buyers, and a number of real estate funds were selling.  Debt backed buyers were mainly out of the market.  Overseas buyers were still active and focussed mainly on central London.  Pricing had softened and the number of competitive buyers had reduced from a year ago.

With regard to individual sectors, the value of industrial and logistics sheds had reduced the most during the second half of the year.  Prior to that there had been the strongest demand for five or six years and the market had potentially got overheated.  The retail sector had faired fairly well although traditional high streets and shopping centres continued to suffer.  Supermarkets and out of town retail parks were trading well.  In respect of the office sector, it was still too early to see the effect of home working and whether this trend would continue.  The alternatives sector (anything not industrial, retail or office) had held up fairly well, for example student accommodation and health care.

In terms of inflation it may have peaked.  Unemployment remained low and the labour market was competitive.  Markets remained reasonably robust and given the imbalance in buyers and sellers there should be good opportunities in 2023.

During the last five months, the Fund had made three acquisitions:

• Zara/Vodaphone had completed in June and was trading very well.  There was a lot of development work ongoing in the vicinity which would be advantageous in the longer term. 

• A retail park in Tonbridge – a London commuter town.  This was the only retail park in the area and rarely suffered any voids.  Terms were agreed in May for a price of £27 million which had later been revised to £22 million and the purchase was completed at the end of October.

• An industrial unit in Swindon built in 2019 and let to Iceland.  It was an ambient warehouse for dry goods.  The unit was purchased for £31 million pounds which was less than an earlier agreed price.  There was a 15 year lease subject to RPI reviews. 

The asset management update was as per the report and the team had been very busy with rent renewals.  Performance was positive across the board.

Finally the arrears were much improved from two years ago and were now down at less than a quarter of a million from over £2 million previously.   

Overall it was a positive report and CBRE were pleased with the acquisitions.

ORDERED that the report was received and noted.