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Research - 18/10/2012

UK investors double volume of deals in Q3 2012

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UK investors doubled the number of deals they completed in Q3 in comparison to Q2 – making them the biggest buyers of commercial property in the third quarter of 2012 by volume.

This equates to 53% of market activity. These finding are reported in our latest research, UK Investment Transactions (UKIT) Q3 2012.

UK quoted companies are net investors for first time in 2012

For the first time this year the UK quoted companies were net investors in UK commercial property in Q3 2012. They were particularly active at the top end of the market with Stanhope acquiring Television Centre for £200m, Hammerson buying the Victoria Quarter in Leeds for £136m and British Land purchasing 82-84 Piccadilly for £130m.

Overseas money still driving force

Despite the amount of investment by overseas investors dropping by over £1bn in Q3, they were by far the biggest net investors into UK commercial property: buying over £3.9bn of UK property, but selling less than £1.75bn, which equates to a net investment of £2.15bn.

UK institutions turning to the regions

UK institutions placed over half their £1.46bn quarterly investment in regional property, with retail warehousing and supermarkets proving popular. For example, Orchard Street Investment Management bought the Beehive Centre in Cambridge for £109m at a yield of 5.25%.

Ezra Nahome, our CEO, explained: “Overall, investors continue to be wary of regional investment due to the depressed occupier market. However, one trend that emerged this quarter was that when large, modern and well-let regional shopping centres and retail warehouses come to the market they attract purchasers, mainly because of the secure income they offer.  This was demonstrated by TIAA-CREF, the US pension fund manager buying Festival Place in Basingstoke for £280m and Hammerson acquiring the Victoria Quarter in Leeds for £136m. However, the overall trend, which shows no signs of abating, is investors are still focused on London.”

London offices still the asset of choice

The dominance of London continued with over £5bn or 62% of the total investment volume in Q3 being for property in London. Offices accounted for approximately 50% of the investment total this quarter. A notable increase was recorded in the south east, but the majority of activity was in London. Interestingly some large deals took place away from the traditional London office locations of the City, West End and Midtown. For example AXA forward-funding the development of BNP Paribas’ new HQ at King’s Cross Central for £300m.

Investment volumes 5% up despite summer of celebrations

This quarter investment volumes rose from £7.83bn to £8.22bn. This 5% increase is contra to general expectation after the prolonged summer of celebrations with the Olympics and Paralympics.

Average deal size rose by 45%

The average deal size rose from £15.5m to £22.5m - representing a 45% increase. Countering this, the number of deals that completed was down by 28%. Commenting, Ezra said: “This emphasises the two tier nature of the market we are operating in. Investors continue to be selective and are targeting trophy assets, mainly in London. Consequently the number of deals transacting is falling, but the value of the deals completed is increasing as investors have to aim higher to secure the prime assets they demand.”

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