A Round-Up of Q1 2012 in the UK Property Investment Market

As the global economic crisis rumbles on, it was a slow start to the year in property investment markets around the world - and the UK was no exception...

As the global economic crisis rumbles on, it was a slow start to the year in property investment markets around the world - and the UK was no exception. According to figures from Jones Lang LaSalle, the global volume of direct commercial property transactions in the first quarter of 2012 was 23 per cent lower than a year earlier, with uncertainty over the outcome of the eurozone's problems still affecting markets in Europe. Research from BNP Paribas Real Estate revealed property investment in Western European markets was down 19 per cent in the three months from January to March, compared to the same period in 2011.

The organisation described the UK as following a "downward trend", with total investment volumes for the quarter standing at EUR 7.6 billion (GBP 6.1 billion) - a decline of 30 per cent on Q1 2011. However, the firm pointed out the UK's investment market remains the most liquid on the continent, adding the level of activity had remained high, despite the downturn. "Even though central London stayed stable on a rolling year basis compared to last year, the regions experienced a lack of large transactions that boosted volumes in Q1 2011," BNP Paribas Real Estate asserted. Jones Lang LaSalle made a similar observation, citing the sale of the Trafford Centre Shopping Centre in Manchester at the start of last year as an example of the type of deal that was absent at the beginning of 2012.

Indeed, it is the UK's retail market that has taken the biggest hit, with the BNP Paribas Real Estate data showing investment levels in the sector fell by 55 per cent year-on-year. In its Shopping Centre and High Street Bulletin, Savills pointed out just 12 shopping centre transactions were completed in the first quarter, with a total capital value of GBP 461.55 million. Among the biggest deals were the sales of Ocean Terminal, Edinburgh, for GBP 90 million and St Johns Shopping Centre, Liverpool, for GBP 76.5 million.

Looking at the high street, Savills pointed out "portfolio rationalisation" among big names such as Thorntons, Arcadia and River Island continued in Q1, while businesses including Mothercare, Argos and Starbucks all sought to dispose of outlets on a large scale. However, it is not all doom and gloom, with Savills commenting: "Retailers are still selectively acquiring and due to the lack of quality stock in strong market towns (predominantly south-east biased), competition for space is seeing a rare return to straight ten-year leases, minimum rent frees and strong rentals (although this is town and unit specific)."

In contrast to the retail sector, investment volumes in office properties were more stable in the first quarter of the year, with BNP Paribas Real Estate recording a 19 per cent decline for the UK as a whole. However, when the focus was turned on the central London office sector, the firm highlighted a "slightly upward trend" in real estate investment, although the West End and Docklands registered fewer transactions than a year earlier. A lack of new stock has benefited the London office market, helping to push vacancy rates lower. The organisation predicted this will continue throughout 2012, as few new completions are anticipated.

Research published by CB Richard Ellis (CBRE) pointed to the increasing investment volumes in the central London office sector in the three months from January to March, which hit GBP 3.7 billion - up from the GBP 1.7 billion recorded in the final quarter of 2011. The organisation noted this figure was enhanced due to "a large backlog of deals in the City that went under offer towards the end of 2011". According to Cluttons, the largest deal in the West End office sector was Crosstree's purchase of 1-3 Berkeley Street from Aviva for GBP 155.1 million. Other notable transactions elsewhere in London included the sale of 90 High Holborn and One Exchange Square by KanAm for an undisclosed sum. However, Property EU pointed out the two buildings were part of a four-asset portfolio valued in the region of EUR 1 billion. Meanwhile, PNB paid Beacon Capital more than EUR 400 million for 1 Silk Street.

- Monday 21 May 2012

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