UK commercial property investment activity drops 60% y-o-y in July

UK commercial property investment drops 60% y-o-y in July

UK commercial property investment activity is slowly recovering, but remains below levels typical for this time of the year, according to global real estate advisor Colliers International.

Analysis in the firm’s August Property Snapshot shows that around £2 billion was transacted in July, in line with the June figure and an improvement on weak figures during the lockdown months.  However, this figure is down by around 60 per cent from the corresponding 2019 figure of £5.6 billion.

”Investment volumes in the first seven months are down by 20 per cent on 2019 levels. A pick-up in activity is expected in H2, but will struggle to reach £45 billion by year end,” commented Oliver Kolodseike, Deputy UK Chief Economist at Colliers International.

“This is not a bad result, and certainly better than many were expecting at the start of downturn. It underlines the attraction of real estate as an asset class and the UK within the global marketplace, even during a pandemic. This is particularly true in the face of travel restrictions and restricted access to buildings for valuations, inspections and due diligence.

“That said, if activity fails to pick up considerably, we could be down by much more than 20 per cent by the end of the year.”

Office investment volumes broke through the £1 billion mark for the first time in four months in July, following only very limited activity between April and June when most parts of the country were in lockdown. The majority of activity was recorded in London, led by the sale of 25 Cabot Square in Canary Wharf, which was sold to Hong Kong based Link REIT for £380 million at 4.7 per cent initial yield.

Supermarkets remained in high demand, with Supermarket Income REIT acquiring a six-asset Waitrose portfolio for £74.1 million at 4.4 per cent initial yield and a 68,000 sq ft Tesco Extra on Newmarket’s Fordham Road for £61 million at 4.6 per cent initial yield. There was only limited activity related to high street shops and retail parks.

With the exception of supermarkets and offices, activity across the other main sectors was limited. Overseas buyers accounted for over half of all transactions by value. Capital from Asia Pac accounted for two of the three largest deals in July, with Hong Kong based Link REIT buying 25 Cabot Square and Singaporean Sun Venture acquiring 1 New Oxford Street, also in London, for £174 million at an initial yield of 4.2 per cent.

John Knowles, head of National Capital Markets at Colliers International, added: “While the majority of the deals done in Q2 were started pre-COVID-19, we have seen a real rise in demand from investors over the summer in anticipation of more product coming to market in September. This is particularly true of good quality office stock, long income opportunities, industrial, build to rent and social housing.”

The Colliers International August Property Snapshot also reveals that in occupier markets, industrial take up for Q2 2020 came in at 8.8 million sq ft (deals 100,000+ sq ft). This brings the H1 2020 figure to 17.7 million sq ft, 20 per cent ahead of the same period last year.

Mr Kolodseike noted that a significant amount of UK industrial space is either under offer or has strong tenant interest, and that while available supply remains well-balanced at 34 million sq ft, but this balance could potentially change quickly as we expect several larger schemes to be let over the next few months. The sector could reach another record year of take-up as a significant amount of space is either under offer or has strong tenant interest.