Research - 18/07/2012

UKIT Q2 2012: London still top of the investment market podium

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Continuing the trend seen over the last six successive quarters, investment volumes in London dominated again in quarter two, accounting for 56% (£4.4bn) of the quarterly total.

Over the last 10 years investment in London has on average accounted for 36% of the annual investment volume. The figure for the first half of 2012 was 58%.

Overseas investors responsible for London’s supremacy

Overseas investors strengthened their hold on the UK market by investing £3.07bn of their £4.97bn quarterly total in Central London assets: primarily prime City and West End offices, although a smattering of retail, industrial and alternative assets were also acquired. These findings are reported in our quarterly research bulletin, UK Investment Transactions (UKIT) Q2 2012.

Commenting, Ezra Nahome, CEO said: “The last six months have seen a huge number of Central London purchases by the world’s wealthiest and most equity rich investors - 15 of the top 20 deals were overseas investors acquiring Central London office stock. London holds a myriad of attractions: leading financial and business centre in the world, deep occupier and investor market, transparent leasing structure and an established legal system.”

Q1 to Q2 investment volumes increased by 14%

Investment volumes increased to £7.83bn in Q2. However, the number of deals dropped from 630 to 500, with average deals size increasing by 40%.

Alternative assets attract investors

Investors are still attracted to alternative assets classes that offer secure covenant. Two of the five biggest deals to complete this quarter were for alternative assets. A portfolio of data centres was acquired by US firm Digital Realty Trust for £715m and a portfolio of student accommodation was acquired for £415m by Round Hill Capital. A high number of supermarket deals also completed this quarter; £300m of stock was traded at a weighted average yield of 4.87%, lower than Central London offices.

Regional markets muted

When good quality assets come to the market they find buyers, overseas investors, who are concentrating on prime stock, transacted £560m this quarter in the regions. However, the relative lack of quality stock in the regions, concerns over the economy and lack of occupier demand means few investors are looking at secondary stock in the regions.

UK based investors priced out of Central London

All of the UK based investors were net sellers this quarter, with institutions, public and private property companies bringing over £4.3bn of stock to the market. This could reflect a lack of available debt with investors selling assets to release cash or, as Ezra explains, it could be an interesting dynamic emerging: “In response to overseas investors strong demand for Central London property UK investors are selling large assets at very competitive yields and are reinvesting in good secondary properties where opportunity to add value may lie.”

Concluding Ezra said: “Overseas investors will continue to be the biggest buyers of UK property, as the UK investors are either priced out of Central London, start to look to other markets in search of better value, or are held back by a lack of debt.”

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