London investment activity continues to dominate – Lambert Smith Hampton
UK property market investment activity increased during the second quarter, despite the worsening economic outlook, notes Lambert Smith Hampton in its latest UK Investment Transactions report. Total Q2 investment reached £7.83bn, which was 14% above the previous quarter and the highest quarterly figure since Q3 2011. Offices were the most heavily invested-in asset, with a transactional volume of £4.16bn, the firm notes.
Overseas investors remain the most active buyers of UK property, accounting for 65% of the quarterly total, while UK investors were held back by a lack of debt and aggressive pricing on the most sought-after prime assets, Lambert Smith Hampton says.
As seen repeatedly over the past year, London was the location for more than half of the total investment into UK property, with investment into the capital totalling £4.4bn or 56% of the quarterly total. The attractiveness of the capital shows no sign of waning: “Over the last 10 years London has accounted for, on average, 36% of the annual investment volume; however, the figure for the first half of 2012 is 58%,” the firm notes.
Yields for office property moved in by 68bp during the quarter as London office space continued to attract overseas investment, but continued to move wider for industrial property and retail assets. Investors remain attracted to alternative asset classes, the firm notes – the largest transaction during the quarter was the purchase of a portfolio of data centres for £716m, and there was also a £415m deal involving student housing. But there is little appetite for secondary stock of any type.
The compression of UK government bond yields in response to the eurozone crisis is a key reason why the gap between the All Property yield and UK 10-year bond yields is currently the largest recorded by the firm. While this makes property – particularly prime property – look attractive compared with some more volatile asset classes, it also emphasises the level of risk that investors are still pricing into their transactions, the firm says.
With equity-rich overseas investors driving the market, the average deal size has increased by 40% on average – the total number of recorded deals has actually fallen to 500 from 630, the firm notes, and activity at the smaller end of the market has been subdued.
