Central London’s office market has stabilised following the UK’s Brexit vote, as investment in the sector beat expectations in 2016.
New research from Savills shows that investment turnover reached £15.9bn in 2016, 17 per cent down on 2015, but 45 per cent above the 20-year average and higher than the level the firm predicted for 2016 at the start of last year.
“Despite some recent clarity on what path the UK government hopes to take for our exit from the EU, uncertainty about the likely outcomes of these negotiations is still substantial,” notes Savills. “This makes it hard to chart an accurate path for the London office market over the next five years.”
However, Savills concludes that “the risks of London losing large numbers of jobs to other EU cities has been significantly overplayed”, and that the higher-than-average performance is a sign that investors are taking a balance view of the market’s risk and return.
Heightened occupational uncertainty, as well as structural issues in the retail fund sector, “definitely has led to less institutional investor activity in London over the last six months”, adds Savills’ report, although this was compensated by a surge in overseas investment, partly driven by the weakening of the pound against other currencies.
The most active group of non-domestic investors in London in 2016 were those from the Asia Pacific region, who deployed in excess of £4.7bn in 2016 and accounted for one third of total turnover.
“Of course, if this rise in investor interest was in part motivated by currency movements then it could disappear if the pound starts to
recover, or if the occupational outlook worsens,” notes the report, but adds: “a sharp recovery in the value of the pound looks pretty unlikely at the moment”.
Central London office investment to top £17 billion
6th January 2017
Investment in Central London offices is expected to have topped £17 billion in 2016, as the city’s commercial property remains attractive, despite the UK’s vote to leave the EU.
According to international real estate advisor Savills, turnover in Central London’s office investment market is expected to reach more than £16.8 billion, 20 per cent ahead of the long term average (£14.4 billion) and only 15 per cent down on 2015, one of the strongest years on record (£19.4 billion).
Overseas investors have been “particularly active”, says Savills, partly due to the currency shift following the EU referendum. Asian investors deployed £4.5 billion into the Central London real estate market up to the end of November, accounting for one third of total turnover for 2016 – the greatest market share on record.
Rasheed Hassan, head of cross-border investment at Savills, comments: “The weakness of Sterling following the EU referendum has encouraged a flow of international money into London with an effective discount of 10-15 per cent on entry prices for investors whose currency is pegged to the US dollar. Pricing overall has been easing off its high water mark since June 2015 and with these factors combined we have never seen such a level of interest in London from Asian investors, particularly those from Hong Kong, as we do today.”
In the City market, overseas investors have accounted for a noteworthy 85 per cent of activity since the EU referendum, with 54 per cent carried out by Asian purchasers. Notable transactions include new entrant Asian Growth Properties acquiring 20 Moorgate for £155 million, and Kingboard Chemical Holdings who purchased Moor Place, 1 Fore Street, for £271 million.
Stephen Down, head of Central London investment at Savills, adds: “Central London’s office investment market has been on the world stage more than ever in the second half of 2016 and total turnover reflects the ongoing appetite for, what continues to be regarded as, a global gateway city. We remain realistic of course but with prime yields ranging between 3-6 per cent, commercial property continues to be an attractive asset class for investors.”
Record amount invested in Bristol offices
4th August 2016
Investment in Bristol offices has reached a record level this year.
The city was ranked the second commercial property hotspot outside of London earlier this year and now, new figures from Savills demonstrate why. The data shows that investment climbed to £237 million in the first half of the year, 140 per cent above the long-term half year average of £98.7 million. Domestic UK investors accounted for £82 million of the deals – 35 per cent of the total – also above their long-term average of £49 million.
Key deals between January and June 2016 included the purchase of Bridgewater House, near Temple Meads Station, by a private investor for £56 million, representing a yield of 5.35 per cent. Prime yields for the market stand at 5.25 per cent.
Andrew Main, director of investment at Savills Bristol, says: “In the first half of 2016 alone we have seen more investment in Bristol offices than during the whole of 2014. Bristol is seen as a solid choice by investors; tenants continue to see it as a very attractive location, whilst decreasing availability of Grade A space means that rents are predicted to rise from their current £28.50 per sq ft to £35 by the end of the decade. We anticipate that investment volumes will remain strong through to the end of the year and beyond.”
Demand for office space in Bristol also remains high: take-up reached 381,291 sq ft (35,421 sq m) in the city centre during the first half of 2016, says Savills. This is higher than the long-term half year average of 278,000 sq ft (25,826 sq m) and the strongest first half since 2007. Savills forecasts that Bristol is on track to reach take up of 800,000 sq ft (74,320 sq m) by the end of 2016, well above the five year average of 533,000 sq ft (49,515 sq m).
Photo: Harshil Shah
Edinburgh and Manchester top commercial property hotspots outside of London
14th June 2016
Edinburgh and Manchester are ranked among the top commercial property hotspots outside of London by new research.
Edinburgh and Manchester are ranked among the top commercial property hotspots outside of London by new research. The study by law firm Morton Fraser shows that the Scottish capital is the most attractive location for investment outside of the UK city, topping a table of Top 10 markets.
Bristol is ranked second, with Manchester in third place. All three cities are the most appealing regional locations for investors – more found them attractive propositions than those who did not. The remaining seven cities, though, did not appeal to the majority of investors, with more rating them an unattractive investment proposition rather than an appealing one.
Aberdeen, for example, is rated the least attractive location for property investors, after its energy-dependent economy has been hit by falling oil prices, leading to thousands of job losses and the contraction of the oil and gas industry.
David Stewart, commercial real estate partner at Morton Fraser, says: “The three ‘net positive’ cities in our league table have demonstrated real economic resilience since the recession. Their success in protecting inward investment, attracting business and talent, and developing infrastructure means property investors can more easily envisage long-term gains.
According to Morton Fraser, Leeds, Cardiff and Glasgow will all expect to move into a net positive investment score in the coming year, after at least 30 per cent of investors felt they were attractive locations. They have also negotiated city region deals with the UK Government collectively worth at least £3bn.
Indeed, Stewart forecasts that city region devolution will play “a key role in ensuring investors see regional locations as positive income-generating opportunities”.
“Regional commercial property investment has a lower upfront capital cost but can often return higher yields and longer tenant leases,” he adds, “improving income security. However, those benefits are outweighed by perceived economic risks in most regional cities by potential investors.”
The research follows a study from CBRE that highlighted the growing popularity of regional cities among investors, with Manchester attracting £8.2 billion of commercial property deals in the past decade.
Investment in Manchester commercial property tops £8bn
13th January 2016
Investment in the UK’s regional commercial property markets has totalled £44 billion in the last 10 years, according to CBRE. Regional cities have increasingly become a target among investors, as they seek markets away from the capital, which has become more and more expensive. In total, the regions beyond London and the South East now account for almost 60 per cent of all UK commercial real estate transactions.
Manchester is the most popular target market, attracting £8.2 billion of commercial property investment in the past decade – ahead of Birmingham (£6.5bn) and Glasgow (£5.3bn). Manchester also performed better than Birmingham on a per capita basis, although two other large cities (Glasgow and Leeds) and four smaller cities (Aberdeen, Edinburgh, Cardiff, and Bristol) perform better in this per capita ranking than both.
The report identifies the key factors behind a city’s success – civic leadership, talent in growing sectors, quality of life and infrastructure – and softer indicators, including the number of 5 star hotels or Michelin star restaurants.
The findings show that investors have diversified their property holdings as part of the recent economic recovery with emerging investment sectors such as healthcare and student housing increasing their share of the market. Prior to the financial crisis, these assets accounted for 3 per cent of investment; this has trebled to around 10 per cent of total investment volumes.
The figures arrives as a separate CBRE study found that total return on investment from UK commercial property reached 14 per cent at the end of 2015 – below the peak of 19.7 per cent recorded in 2014 but above 2013’s 11.5 per cent. December delivered returns of 1.1 per cent for the month.
Overall, rental values across all property types grew by 4 per cent in 2015, the highest growth rate since the recession. Rental value growth remained stable in December at 0.4 per cent, where it has been since September, ending the year significantly higher than the 0.2 per cent recorded in January 2015 and ahead of the 0.3 per cent monthly average for 2015.
Capital value growth across all commercial property sectors and regions also remained flat in December at 0.7 per cent, having been below 1 per cent since January 2015.
Miles Gibson, Head of UK Research CBRE, comments: “An urgency to close deals in the last month of the year meant that total returns spiked quite significantly in December 2013 and December 2014. This simply didn’t happen in 2015. Nevertheless rental and capital values both performed well for investors in 2015, continuing the upward trend seen in the last years.”
Over the whole of 2015, capital values grew by 8.3 per cent, behind the 12.9 per cent for 2014. The sector with the strongest capital value appreciation in 2015 was Offices at 12.8 per cent, followed closely by the Industrial sector at 11.2 per cent.Google+