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News - 25/04/2018

Flying Start To The Year For UK Investment

£13.6bn of assets changed hands in the first quarter of 2018, up 5% on the same period in 2017 and the second strongest first quarter for a decade, according to Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report.

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Reflecting the industrious start to the year, the total number of deals was also 22% above the five year quarterly average.  Demand, however, remains highly polarised. There remains strong interest in industrial and long income assets, with £1.9bn worth of industrial deals in the first quarter. This follows hot on the heels of record annual volume in the sector across 2017.  Three major portfolio deals were the underbelly of such performance, including two purchases by the Blackstone/M7 Real Estate joint venture comprising: the £320m investment of 40 light industrial assets across the North West and the Midlands from InfraRed Capital Partners; and the acquisition of a logistics portfolio from Helical* for £150m.

The theme of strong investment into alternative asset classes continues unabated. At £1.6bn, hotel and leisure volume was 18% above the five-year quarterly average, boosted by the quarter’s largest deal, namely LRC Group’s £600m acquisition of Lone Star’s hotel portfolio comprising 23 assets leased to Mercure and Hilton.

Conversely, the retail sector remains patchy with just £1.5bn worth of deals crossing the line in the first quarter. This is half of its average quarterly level, reflecting high levels of investor caution.  Shopping centres continue a dire run of activity with Q1 volume standing at £390m - 56% below its quarterly average. One of the few bright spots in the sector is the emergence of local authorities into the buyer pool. 

Meanwhile, London aside, the revival of activity across the UK continues with single asset deals accounting for £5.7bn of the volume - 16% above the five-year quarterly average. Geographically, the North West had a very strong quarter, with volume of £975m, more than double the same period last year. Deals included Secure Income REIT’s £102m acquisition of Manchester Arena from Mansford LLP; L&G’s £125m acquisition of the India Buildings, Liverpool; and Aviva’s £113m purchase of Two New Bailey Square, Manchester. 

At £5.5bn, overseas investment was relatively subdued in Q1, marking its worst quarterly performance in 18 months, and down 20% on the five-year quarterly average. More limited activity from overseas buyers was reflected in below average investment in London and a lack of major lot size deals. 

In contrast, quoted property companies purchased their third highest volume on record at £2bn, with the focus on specialist and alternative sector assets. Having been net sellers for the previous six quarters, this reversal meant they were net buyers to the tune of £850m. 

Ezra Nahome, CEO at Lambert Smith Hampton, commented:

“We’re seeing a continuing theme in a post EU Referendum era, characterised by plenty of available cash, elevated prices, excessively squeezed stock levels and downward pressure on yields.  As a result, stock selection becomes even more critical to achieve the best returns. 

“A considerable chunk of money is chasing industrial and logistics assets, while the retail sector remains subdued. The demise of yet more retailers and restaurants  - UK stalwart ‘Toys R Us’ the latest to fall into liquidators’ hands, and ‘Byron’ continues to reduce its estate as part of its rescue plan - does however provide an opportunity for both sectors to reinvent themselves. 

“While evidence suggests caution towards Central London, the regional picture is far rosier reflected in a strong opening quarter of the year for investment nationwide.  Money flowing into non-core sectors, such as alternatives, is set to continue.” 

*LSH advised Helical 

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