1. Part A: UK commercial real estate

2. Chart A.13 UK CRE transactions fell further in 2016 Q3
UK CRE transactions (gross quarterly flows)(a)
Sources: The Property Archive and Bank calculations.
(a) Final data points are the sum of three months to October 2016.

3. Chart A.14 Open-ended CRE funds faced large net outflows immediately following the referendum
Net flows to open-ended UK CRE funds(a)(b)
Sources: Morningstar and Bank calculations.
Based on Morningstar Category 'Property — Direct UK' with the following definition: ‘Property — Direct UK funds have the legal status of an investment fund, and directly invest in and/or manage real estate (ie they directly own or manage ‘bricks and mortar’ property). At least 50% of the total assets are invested directly in real estate properties in the UK.’
Fund flows are excluded in any month where: inflows are greater than three standard deviations of inflows; outflows are greater than three standard deviations of outflows; total net assets are reported as less than £100; or where flows are skewed due to fund restructuring.

4. Chart A.15 The UK CRE rental yield remains low
Yields on UK assets
Sources: Bloomberg, MSCI Inc. and Bank calculations.

5. Chart A.16 There is a wide range of sustainable CRE valuations
Commercial real estate prices in the United Kingdom and range of sustainable valuations
Sources: Bloomberg, Investment Property Forum, MSCI Inc. and Bank calculations.
Sustainable valuations are estimated using an investment valuation approach and are based on an assumption that property is held for five years. The sustainable value of a property is the sum of discounted rental and sale proceeds. The rental proceeds are discounted using a five-year gilt yield plus a risk premium, and the sale proceeds are discounted using a 20-year, five-year forward gilt yield plus a risk premium. Expected rental value at the time of sale is based on Investment Property Forum Consensus forecasts. The range of sustainable valuations represents varying assumptions about the rental yield at the time of sale: either rental yields remain at their current levels (at the upper end), or rental yields revert to their fifteen-year historical average (at the lower end). For more details, see Crosby, N and Hughes, C (2011), ‘The basis of valuations for secured commercial property lending in the UK’, Journal of European Real Estate Research, Vol. 4, No. 3, pages 225–42.

6. Chart A.17 UK real estate investment trust share prices fell in September and October
UK real estate investment trusts and FTSE All-Share indices, 17 June–18 November 2016(a)
Sources: Bloomberg and Bank calculations.
(a) 100 = closing price on 23 June.

7. Chart A.18 Debt financing in the UK CRE market has risen a little
UK CRE debt reported to De Montfort University survey(a)
Sources: De Montfort University and Bank calculations.
The composition of the survey sample was altered in 2012 to include insurance companies and other non-bank lenders as a separate category. Data exclude commercial mortgage-backed securities.

8. Chart A.19 A third of UK banks’ CRE loans typically mature in the near term
Remaining time to maturity for UK banks’ and building societies’ outstanding UK CRE loans(a)
Sources: De Montfort University and Bank calculations.
(a) Maturity profiles of outstanding loans at year-end. Respondents are asked for annual maturity profiles of their outstanding loans.