February 22, 2018
Investment in UK commercial property rose 66 percent in January compared to the same month last year, according to data from Savills, to £4.2 billion. In its February Market in Minutes report the international real estate advisor says that investor appetite for UK property remains very strong. In 2017, total investment into UK real estate reached £65.4 billion, representing a 26 percent increase on 2016’s annual total. According to Savills, the office and industrial sectors led the way, with overseas investors responsible for nearly half of total volumes, of which Asian investors were the most active, accounting for a fifth of all investment.
Savills says that average UK prime yields remained static in January at 4.52 percent, around 30 basis points lower than the same point in 2017, with a small amount of downward pressure on yields for M25 office and industrial distribution assets.
Investors ploughed nearly £11 billion into the industrial sector in total during 2017, 80 percent up on 2016, according to Savills. Investors continue to be attracted to the sector by the secure income it offers, with pressures on land, particularly inside major cities from other uses, likely to maintain undersupply and deliver rental growth.
Mark Ridley, CEO of Savills UK and Europe, comments: “January’s volumes demonstrate that investors are still looking beyond Brexit and are happy to commit to the UK to secure prime property with secure income characteristics. Based upon current projections, driven by a downward shift in equivalent yields, we expect total returns for average UK commercial property to be around 7 percent this year before weakening slightly for some of 2019 as investors take a ‘wait-and-see’ approach as the UK officially leaves the EU.”
Steve Lang, director in Savills commercial research team, adds: “This February marks the 10-year anniversary of the first Market in Minutes in 2008. Back then, average UK prime yields rose by over 120 basis points during the year, development activity indicators had slumped and GDP expectations were slashed. Compared to this, the impact of the Brexit vote is relatively mild. In addition, you would have been hard pushed in 2008 to have predicted the explosive growth in online shopping over the past decade which has largely driven occupier demand, and therefore investor appetite, for industrial space.”
The UK accounts for a significant proportion of the European corporate investment transactions including venture capital, private equity and mergers & acquisitions (M&A), says Savills. Volumes have increased substantially to £6.4 trillion in total over the last five years, with the UK accounting for around 30 percent, on average, of all European deals by value.
This demonstrates confidence in the UK as a centre for investment, whether it is corporate M&A or investment into the start-up community, according to Savills, and is likely to trigger future real estate activity as companies grow and expand and then recruit as a result of raising new capital.