Investment volumes in June indicate some easing of transactional logjam, says Colliers International

Investment into UK commercial real estate broke through the GBP1 billion mark in June for the first time in three months, suggesting the logjam in transactions is beginning to ease, states Colliers International in its latest Real Estate Investment Forecast research.

The second quarter of 2020 saw around GBP3 billion invested into UK commercial real estate. When combined with the strong GBP15.4 billion transacted in the first quarter, total investment in H1 2020 reached GBP18.3 billion, down 16 per cent from H1 2019 notes the real estate advisory firm.

The largest deals in Q2 include SEGRO’s purchase of a 23-unit industrial estate at Perivale Park in Greenford for GBP202.5 million at 3.5 per cent yield, L&G’s acquisition of an office and BTR scheme at Sheffield’s West Bar Square for GBP150 million and the sale of 55 Ludgate Hill to Union Investment RE for GBP139 million at 4.5 per cent yield.
Oliver Kolodseike, associate director in the Research team at Colliers International, says: “Despite the slowdown in investment volumes in the second quarter, there are signs that activity is picking up again and we are aware that up to GBP2.5 billion worth of contracts are currently in the making. As investment volumes recover it will bring more transaction evidence to the market and may result in a modest recompression of prime yields in some segments of the market.”
Colliers expects annual all-property returns to fall by 7.1 per cent this year as increases in yields are driven by rental performance and pricing concerns amongst most asset classes. Over the five-year horizon through to 2024, the firm predicts all-property annual average returns of 3.8 per cent per annum.
John Knowles, head of National Capital Markets at Colliers International, adds: “Despite the second quarter still seeing low levels of transactions as COVID-19 continues to circulate, there have been patches of the market that have held up during this time, and where investor appetite has actually increased. Most notably this has been for supermarkets where demand has been driven by appetite for low-risk, long-term income streams. The rise of e-commerce as more people shop online during this time has helped keep the industrial investment market relatively steady. Development opportunities and sectors such as PRS and student accommodation still remain attractive, helped by their longer lead times and underlying robust market fundamentals.”