Cautious investors focus on London
The market for investment property in London was robust in the first quarter of 2012, says Cushman & Wakefield, with £3.6bn transacted – 42% more than in the final quarter of 2011. Lambert Smith Hampton, meanwhile, notes that the investment activity in the capital during Q1 2012, at £4.15bn, accounted for a whopping 61% of the quarterly total of £6.85bn transacted in the whole of the UK.
Lambert Smith Hampton’s CEO Ezra Nahome notes that the proportion of activity in London in Q1 2012 was almost double the ten-year average of 35% as investors remained cautious when assessing secondary property in the regions. “Investors are fundamentally attracted to assets which are very secure and let on long leases and these assets are not location sensitive. We see this trend continuing and if anything yields getting stronger as investors appetite for risk diminishes. However, Central London offices continue to be the most desirable asset class from a pure property perspective – accounting for nearly 40% of the investment volume in quarter one,” he added.
C&W says transactions within the City and Docklands markets in the first quarter totalled £2.4bn in 13 deals, which the firm considers surprisingly high, given the turmoil in markets at the end of last year. International investors continued to dominate the market. German funds returned, accounting for £190m completed in two deals, £150m exchanged in a further transaction, and another £235m under offer. Middle Eastern investors were also active, C&W notes.
The firm also says that large properties with less than 10 years of income stream are proving difficult to sell; the supply of Grade A 10-year-income deals is drying up. C&W notes in addition that some buildings transacted during the first quarter of this year were acquired for conversion to hotel or residential use.
In the West End, volume was £1.21bn in Q1 2012, across 40 deals, most of which were under offer before Christmas. This total was 4.83% more than Q4 2011 and a 105% jump from Q1 2011. International investors accounted for 56% of the activity. Clive Bull, head of Central London investment at C&W, says that demand for prime West End offices remained strong, but investors were faced with a very restricted pipeline for stock.
At LSH, Ezra Nahome says investors will only return to the UK regions in any number when there is confidence in the occupier market and when debt becomes more readily available. “Ultimately this will be when the UK’s economy is back on track, which according to economic forecasts will not be until 2013,” he says. “Without doubt, when investors do decide to return to the regional markets stock selection, pricing and local market knowledge will be key to performance.”
