Q4’s strong volume owed much to large-scale purchasing in the UK regions. Volume for single asset deals outside London was £7.0bn, the highest since Q4 2006. Moreover, despite healthy volume of £5.2bn in London, regional volume eclipsed that seen in the capital for only the second quarter on record. Several regions also saw record annual investment in 2017 as a whole, namely the South East, East, the South West and Wales.
Insatiable investment demand for industrial and logistics drove a record-breaking year, with volume of £2.0bn in Q4 taking the 2017 total to £7.5bn, smashing the previous high of 2014. The specialist sectors also saw a record £10.0bn of investment in 2017, accounted for a 17% share of UK volume. Meanwhile, investors remain averse to the traditional retail sectors. Another poor quarter for shopping centres in Q4 took the annual volume to £2.2bn, its lowest since the height of the recession in 2009.
The All Property average transaction yield was virtually unchanged in Q4, moving in by a single basis point from Q3 to 5.56%. Among the key sectors, Industrial saw the largest movement, with average yields moving in by 29 bps to all-time low of 5.49%.
Q4 also marked the emphatic return of domestic investors to the market. Institutional investment surged to £3.9bn in Q4, more than double the previous quarter and the highest since Q2 2015. For the first time in two years, a domestic buyer was also behind the quarter’s largest deal, namely IQ Student Accommodation Group’s £869m acquisition of the Regent Portfolio from LetterOne Treasury Services.
Outlook for 2018: glass half full
Commenting on his views for what lies ahead in 2018, CEO Ezra Nahome commented “Judging by the stellar finish to 2017, the market is clearly taking all the political noise and uncertainty firmly in its stride. The emphatic return of domestic investors also confirms that there is far more to UK property investment than a mere currency play in London.
“If 2017 is anything to go by, my glass is definitely half full for the year ahead, even if uncertainty and risk abound. Alongside a decent showing for the UK economy in Q4 and signs that inflation is now subsiding, there is a growing sense that Brexit is moving towards a softer departure from the EU, all of which should alleviate some concerns around the occupier markets”.