Investors see London as a safe haven – Lambert Smith Hampton
Lambert Smith Hampton says investors in UK commercial property transacted a total of £8.06bn of deals during Q3, 22% more than in the previous quarter – despite the uncertain economic climate, and even though the third quarter is typically the quietest of the year.
The firm says this shows commercial property is still providing attractive returns to investors compared with other asset classes. Following the second round of quantitative easing by the Bank of England, Lambert Smith Hampton CEO Ezra Nahome says “we could witness increased investment activity over the coming 12 months” as QE will support continued low finance costs and stimulate interest in the market.
While investors seeking well-let assets with a good covenant and income stream remain interested in Central London offices, there is also evidence of increasing demand for alternative asset classes such as leisure property, where some large transactions boosted the total Q3 figure. LSH’s UK Investment Transactions report for the third quarter shows that investment in Central London totalled £3.6bn during Q3 – nearly half of all transactions completed. The market for available office space in Central London was particularly active, accounting for 63% of completed deals. The average yield in this sector remains below 5%, which is not far off the 2007 peak, the firm notes. “Property in London is seen as a safe haven for investors’ money and looks very attractive in comparison with the yields on offer from 10-year gilts and volatile equities,” it says.
But LSH says investors are also beginning to look for opportunities beyond the capital and the south east, by buying up prime office space in the regions. Mr. Nahome says investors are choosing quality over quantity in the regions, as the number of deals in Q3 was half the amount completed in Q2, but the total amount of money invested was the same.
While continued economic concerns “could lead to a slowdown in traditional sales activity in Q4,” says Mr. Nahome, “we do expect an increase in portfolio and debt sales as banks further downsize their loan books”.
