The latest research from estate agency Carter Jonas has revealed that investment volumes in UK commercial property are set to pass £70bn in 2015, the highest amount on record. Nearly £50bn worth of transactions were completed in the first three quarters of this year. Q4 volumes, with a healthy number of deals already in the pipeline, are expected to surpass £20bn, as they did in 2013 and 2014.
The research, which was based on the analysis of Propertydata figures, found that total deal volumes for the first nine months of this year had risen by 17% against the same period last year (£41.7bn). The majority of this came from foreign investors, with those from overseas accounting for nearly half of total investment. By the end of 2015, international investors will account for over 50% of the UK market for the first time. Fifteen years ago, they had a market share of less than a quarter.
Much of the growth in activity has been led by a sharp increase in deals involving hotels, leisure and specialist property assets. Investment volumes have also been enhanced by a number of sizeable portfolio deals. In the first three quarters of this year investment volumes in offices and retail warehousing grew by 12-13%.
“There is still plenty of capital chasing commercial property, with this year set to be record-breaking,” Darren Yates, head of research at Carter Jonas, said. “However, with the market edging towards its natural peak in the cycle, a pause for breath seems likely in 2016. Moreover, investors will need to factor in headwinds such as the anticipated interest rate rise and the EU referendum. “
Across the mainstream sectors significant yield compressions is already commonplace. Consequently, good value investment opportunities are becoming more and more difficult to come by, especially in central London and, more and more, in the large regional cities. Smaller cities such as Oxford, Cambridge and Bath have therefore seen demand increase sharply, partly thanks to strong performances in 2014. Nevertheless, supply is limited in these areas – especially in Oxford – which could affect investor yields.
Mike Prosser, partner in the investment team at Carter Jonas, also commented: “While we will continue to see further yield compression in some parts of the market, this could taper off in the next 3-6 months,” he said. “However, when viewed against current bond rates, property yields still offer good value and, with rental growth coming through, there is still an incentive to invest in UK commercial property.”