Commercial property investment drops, but market remains “buoyant”

Commercial property investment fell in the first three months of the year, but the market remains “buoyant”, reports JLL.

According to preliminary figures, approximately £11bn was transacted across the UK real estate investment market in Q1 2016, compared to in excess of £15bn last year. Despite this fall, though, a number of sectors and sub sectors are still seeing a “lot of activity”, notes JLL, with smaller lot sizes showing greater resilience; there continues to be activity for these assets from a wide buyer group.

“More transactions are happening now on a discreet, targeted basis rather than through wide formal marketing campaigns processes,” says JLL, which notes that while market volumes are going to be down by approximately 27 per cent, JLL’s own volumes are down by only 17 per cent.

Several recent deals indicate this buoyancy, such as the sale of Atria in Edinburgh, 190,000 sq ft of office space, for £105 m, the sale of Osborne Clark’s headquarters office building in Bristol for £34.1m and an office building in Liverpool on behalf of the HCA for £13.5m.

In the Central London market, JLL has transacted on over £1bn of transactions and is currently working on “a further £1bn of transactions” in the market. In particular, 30 Marylebone Road was sold on behalf of LaSalle for £101m, which was a record land price for the area.

Demand in the retail warehousing market has been strong due to the growth of online retailing and the strength of occupiers, notes JLL, citing the £67 million sale of Templars Shopping Park in Oxford for a net initial yield of 4.99 per cent.

Chris Ireland, UK Chairman and Lead Director of JLL’s Capital Markets team comments: “Although volumes have come off, there is still activity in the market and a number of investors are continuing to execute sensible investment strategies. This was borne out in a recent JLL investor sentiment survey, where 55 per cent of respondents said that they planned to increase their exposure to commercial real estate in 2016. This demonstrates that investors are still seeing real estate as attractive relative to other asset classes in the current low yield environment.”

The upbeat report follows a surge in investment from Chinese investors in London’s commercial property market. CBRE has also highlighted overall momentum in the capital, despite the possible Brexit in June 2016 promptng some uncertainty in the UK real estate industry, with 3.1 million sq ft of offices snapped up by companies in the first quarter of the year.