UK commercial property investment volumes above long term average despite uncertainty in 2018

Around GBP13 billion of UK commercial real estate assets were traded in the final quarter of 2018 taking the full year investment total to GBP55.8 billion – ahead of the long-term average, according to Cushman & Wakefield.

While the full year investment total represented an 18 per cent reduction on 2017 and the quarterly total of GBP12.8 billion was down 43 per cent on a year ago, reductions were expected with activity coming off recent highs. Both annual and quarterly trading was still above long run averages of GBP42 billion and GBP10.5 billion respectively.
Cushman & Wakefield research reveals that activity was weaker in most sectors with the exception of hotels and residential which were broadly stable on the back of continued demand. Logistics dropped the most (-40 per cent to GBP7.9 billion), albeit 2017 volumes were supported by a number of large portfolio sales.
Retail investment was 23 per cent lower over the year driven by a 27 per cent fall in retail parks. Shopping centres posted a rise, although excluding entity sales, trading was close to 50 per cent lower at less than GBP1 billion.
Prices are beginning to stabilise, or even fall in some cases. Retail was the only sector to see yields rise from 6.00 per cent to 6.15 per cent over the year. In all other sectors yields, continued to compress, albeit at a weaker pace, with the greatest decrease in industrial where the equivalent yield fell 47bps in 2018 to 5.32 per cent.
Trading across Central London in 2018 was just 4 per cent lower year-on-year at GBP20.6 billion with activity in the City marginally higher than in 2017 (+1 per cent) across the period at GBP10.8 billion.
Outside London activity fell 25 per cent, partly due to fewer portfolio sales over the year. Overall, the gap between prime and secondary yields narrowed over the quarter, although continued political uncertainty will potentially see the gap stabilise and possibly widen into 2019.
Dr Nigel Almond, Cushman & Wakefield’s Head of Data Analytics - EMEA Research, says: “The ongoing uncertainty surrounding the UK’s exit from the EU is causing caution among some investors either seeking to sell or acquire assets. Baseline predictions suggest weak or negligible growth for several quarters in the event of a no-deal Brexit but the wide variation in forecasts underlines the uncertainty in the market.
“With a gap emerging between buyer and seller expectations on pricing amid continued uncertainty, deals are taking longer to close, with many investors unwilling to sell at lower prices or holding off from bringing assets to the market, despite there being active demand. Pricing is expected to stabilise with softening in some segments, as activity is expected to remain weak in the first half of this year although we could see a positive upswing if greater clarity emerges on Brexit.”