Prime property remains in short supply for investors – Lambert Smith Hampton
The lack of quality office space available in London’s West End drove transaction activity in this area sharply downwards during the first quarter of this year, to just £228m – a level not seen since Q1 2004, says Lambert Smith Hampton in recent research into the UK property investment market.
The subdued activity drove transaction yields upwards for the West End during Q1 2011 and contributed to a surprising 30bp increase in yields for Central London offices, LSH notes. Looking at all property, there was a 10bp increase in transaction yields across the market during the quarter. Yields fell in the City and Midtown office markets as investor interest in these areas remained strong. LSH says transaction yields in the City averaged 5.50% in Q1 with Midtown standing at 5.94%. West End transaction yields stood at 5.53% for the quarter, although demand for this area of the market remains positive, it notes.
Office sector investment remained buoyant overall, with £2.9bn of activity recorded for the quarter – although LSH notes that this is the lowest level of activity in the sector since Q2 2009. Central London remained the key focus with 59% of all office investment and activity was slow elsewhere, particularly in the South East.
Within retail, yields were also mixed, as shop and supermarket yields fell while retail warehouse transaction yields rose 50bp – a development that LSH considers surprising, given the relatively strong market that still exists for this type of asset. The Trafford Centre deal boosted overall levels of retail investment in the quarter to £4.2bn – the highest quarterly total in four years and 49% of the overall total investments made in the quarter.
Industrial sector activity was muted during the quarter, LSH says, with £686m of transactional activity. Distribution remained the major focus of activity, accounting for 54% of overall industrial investment, it notes. LSH says the industrial and logistics market has begun to benefit from the recovery in manufacturing and exports and it believes that this sector will become increasingly attractive to investors.
Expectations of public-sector job cuts continued to restrict investment activity in some regions of the UK during Q1 2011, but there have been instances of competitive bidding when prime property does come to market, LSH says. The most sought-after locations remain Central London, the South East and the South Coast, it adds, but there is in general a lack of prime property changing hands. As a result, interest in good secondary stock is rising and this is having an effect on prices, it points out.
LSH notes that investment activity was strong during the quarter in the East Midlands, Yorkshire and The Humber, and the South West in comparison to the previous years. The lowest levels of activity were seen in the West Midlands and Wales, while there was almost no investment activity recorded in Northern Ireland.
