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Research - 25/01/2013

UKIT Q4: investment volume flat in 2012

Investment in London accounted for more than half of the total market (£30.3bn) in 2012 at £17.4bn. Overall commercial property investment remained flat with a mere 1% increase on 2011’s total of £29.9bn.

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Read the full UK Investment Transactions Q4 2012 report here

London still king

Ezra Nahome, our CEO said: “This is the first time London has recorded such a high percentage of the investment total. Throughout the year London has continued to attract investment, particularly from overseas investors in search of a safe haven.”

Offices are the asset of choice

“In fact, prime Central London offices alone accounted for almost 40% of the transactional market in 2012. If London was the top location for investment, then the office sector was the asset class of choice; more than £15bn was invested in UK offices last year – a 24% increase in comparison to 2011,” Ezra added.

Countering this, retail investment fell by 40% in 2012 in comparison with 2011. The one sub-sector of the retail market to perform strongly was the supermarkets; where over £1.1bn of deals were recorded at a weighted average yield below 5%.

Investment in the UK industrial market also remained low throughout 2012 with a 40% drop on 2011. That aggregate figure hides the underlying trend though, which was that investment levels for standard multi-let industrial units and parks remained level, and investment volumes for distribution warehouses fell by 60%.

Regional activity continues to falter

There was a 26% drop in investment outside London in 2012, equating to an annual decrease of £3.1bn.

Commenting, Ezra said: “Parts of the South East have seen a gradual shift in sentiment with investors willing to look at some markets on the strength of the market fundamentals of demand and supply. But investment in the rest of the country tends to still be on a deal by deal basis, and aside from the prime buildings, buyers are waiting for pricing to reach sufficiently attractive levels before committing to the deal.”

Overseas investors dominate market

Overseas buyers were net-investors to the tune of £7.7bn, making them the only major net-investors in UK commercial property in 2012. In response to the strong demand from overseas investors, the major UK investors were net-sellers in 2012.

Ezra explained: “UK investors were active sellers because they were either looking to capitalise on strong demand for their prime assets, or had their activities curtailed by a lack of debt; unattractive pricing levels; or worries regarding the overall state of the market.”

Predictions for 2013

The key investment trends that emerged in 2012 will persist throughout much of 2013. Overseas investors will continue to seek trophy assets in Central London, although transaction volumes could be limited by the availability of prime assets.

Ezra explained: “The base of overseas investors seeking exposure to Central London will widen even further. For example, we know some of the Australian super-funds are looking to return to the market for the first time since the recession of 2008-09.”

However, an increase in activity is reliant on the debt being available to the investors. We have seen non-traditional lenders, such as insurers and pension funds starting to occupy some of space left vacant by the banks’ retreat. We are hopeful, but not overly optimistic, that these new entrants to the market will start to pick up the some of the slack in the market, but it is more likely that the gap in funding will remain in place in 2013.

Concluding on activity in the secondary markets, Ezra said: “Investment activity outside the core markets will probably expand and some investors will move away from prime towards the secondary achieving significantly greater returns. Any move of this nature will be gradual.”

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