Economic recovery underway but slow August sees UK CRE investment volumes reach just GBP23bn YTD
Investment into UK commercial real estate reached GBP1.1 billion in August, bringing the year-to-date total to GBP23 billion according to new research from Colliers International.
This is down 30 per cent on the corresponding levels of GBP32 billion in 2019. However, the economy enjoyed a mini-boom in August, helped by the Eat Out to Help Out scheme, and the reopening of businesses after lockdown with Sterling enjoying a subsequent surge at the end of last month.
Oliver Kolodseike, Deputy UK Chief Economist at Colliers International, says: “While it was disappointing, it was not completely unexpected that investment activity slowed in August. We saw the Government’s campaign to return to the office and an easing of travel restrictions coincide with the holiday season. As a result, investment sales volumes slowed to just over GBP1 billion from the GBP2.1 billion transacted in July. The good news is that as of 16 September, we have already surpassed August’s figure and we expect a considerable uptick in activity for the remainder of the year.”
Cross border investors were particularly active in the UK commercial property market in August notes the firm, accounting for almost 60 per cent of all investment deals by value, up from 50 per cent this time last year. The UK attracted a high level of overseas capital when compared to the global figures, in which cross-border investment accounted for just 20 per cent of all transactions.
The latest Property Snapshot from Colliers shows that investment was down across almost all asset classes in August. Alternatives attracted GBP470 million, down from GBP800 million in July. Investment into offices reached GBP355 million across 28 deals, down from GBP940 million in the previous month. Industrial investment was hampered by a lack of investment stock and saw GBP200 million transacted, up from a weak GBP131 million in July.
The largest deal in August by value was Columbia Threadneedle’s purchase of the MAGIAL portfolio, comprising industrial assets, development land, and hotel and office space around the Manchester, East Midlands, and Stansted airports for GBP340 million. Other notable deals include the sale of Bourne Business Park in Addlestone to Straits Real Estate for GBP77 million at 7.1 per cent initial yield and the sale of 324 build-to-rent units at Clarendon Quarter in Leeds to Aberdeen Standard for GBP41 million at 4.25 per cent initial yield.
John Knowles, head of National Capital Markets at Colliers International, adds: “August is historically a quiet month, so it is no surprise that volumes have slowed when compared to July. The high level of overseas investment is testament to the UK’s continued attractiveness on the global stage thanks to its diversity of assets and strong pipeline of long-term development opportunities. We are already seeing more product and investor appetite as we move into the much busier autumn period and, looking towards the end of the year continuing strong fundamentals will drive demand. We continue to see investors actively looking for opportunities that are well priced with strong covenants and provide growth prospects – be that rental or developmental.”