Alternatives sector accelerates in UK commercial property investment

Alternatives sector accelerates in UK commercial property investment

Commercial property investment volumes in the UK increased by 69% between September and November compared to the three months before, reaching £10.6 billion across the three months, accroding to Savills’ latest Market in Minutes report.

Savills says the total commercial property investment volumes for the year to the end of November reached £33.4 billion.

The alternatives, principally student accommodation and PRS, was the most active sector with 535 deals worth £13.94 billion transacted in the year to the start of December.

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Industrial was the second most active sector by deal number in 2020 after alternatives, recording 477 transactions worth £5.98 billion, boosted by a 37% increase in the number of deals recorded between September and November compared to the preceding three months. The average prime yield in the industrial and distribution sector has now hardened to 3.75%, down from 4% in October/November, according to Savills, as interest in the sector shows no sign of waning.

“It’s hardly surprising that the alternatives and industrial sectors have seen large volume and deal numbers this year given that the trends that were already underway in both of them were accelerated positively by Covid-19, while some other sectors experienced the opposite. We expect to see more attention being paid to datacentres and any asset with a health or science badge in 2021: while these segments are still pretty small, they may offer the change of use opportunity that retail landlords will be looking for. With a vaccine now being actively rolled out we also expect to see more cheer in the offices sector next year,” comments Richard Merryweather, joint head of UK investment at Savills.

Clare Bailey, director in the commercial research team at Savills, adds: “Another underlying trend that we anticipate to cut across all sectors in 2021 is investors’ increasing focus on sustainability. Even before the pandemic, this was rising up agendas given more sustainable buildings often generate lower long-term operational costs, see quicker lease-up times and rises in capital value. Occupiers are also increasingly demonstrating that they’ll only pay premium rents for buildings with notable environmental certifications, affecting the income return component of investments too.”