The latest UK Investment Transactions (UKIT) report reveals that investment in UK commercial property reached £15.0bn in Q3 2017, up 10% on Q2’s level and 52% higher than the same period in 2016, immediately following the Referendum.
Mega-deals propel volume
Q3’s volume owed much to a flurry of major transactions, with nine deals in excess of £400m making up a record 33% share of volume. This included the largest ever office deal, LKK Health Products’ £1.28bn acquisition of The Walkie-Talkie, London, and a string of portfolio deals.
Meanwhile, activity was also healthy at the smaller end of the market, with Q3 volume for sub £50m lot sizes volume standing 8% above average. Indeed, despite Q3’s ‘mega deals’, much of the larger end of the market was quiet, particularly lot-sizes ranging £100m to £400m.
Far Eastern buyers exploit weak pound
Despite ongoing uncertainty over the UK’s future relationship with the EU, overseas investors continue to show faith in UK property. Q3 largest 15 deals were all purchased by overseas investors, while overseas volume of £8.6bn in Q3 was the highest since Q4 2015. Far Eastern investors continue to command the leading share of overseas volume, accounting for 40% of activity.
Meanwhile, institutions were net sellers of UK property for a sixth consecutive quarter in Q3, at £1.2bn, predominantly disposing of offices and retail assets while remaining net buyers of industrial.
Average transaction yields shift inwards
Q3’s All Property average transaction yield was 5.57%, seven basis points keener than Q2’s level and the first meaningful movement in average prices since Q2 2016. Yield movements diverged between the main sectors, with office and retail yields moving in by 29 and 17 bps respectively and industrial yields moving out by 36bps.
Ezra Nahome, CEO of Lambert Smith Hampton, said “Q3’s impressive volume has really changed the complexion of 2017. The year is now certain to break the £50bn mark for only the fifth time in history, a result few would have predicted at the end of 2016.
“Considering all the political turmoil we’ve seen, both the volume of activity and the performance of UK commercial property in 2017 has exceeded even the most optimistic of forecasts from the start of the year. A cheaper pound and the fact that the UK’s occupier markets have held up well in the wake of last year’s Referendum has been crucial to this."