Investment into UK commercial property reached almost £60 billion in 2021, up on both 2019 (£53.7 billion) and 2020 (£46.9 billion) levels according to Colliers’ Property Snapshot. Across the board, all yields compressed in 2021 with the firm predicting mild compression this year, particularly for prime assets in popular locations.
Oliver Kolodseike, head of Economic Research at Colliers, commented: “Last year was testament to the resilience of the UK’s commercial real estate market, ending on levels that were up on both 2019 and 2020. This year, investment volumes could reach £65 billion as we see a reduction in covid-related disruption and an opening up of global travel. Headwinds will of course still be prevalent and in 2022 we expect to see inflation and interest rate rises hit spending and confidence.”
Overseas capital continued to account for almost half of all investment (47 per cent compared to 2020’s 51 per cent) with US investors taking the top spot, accounting for £13.7 billion of total investment in 2021.
In December, monthly retail investment volumes topped the £1 billion mark for the first time in four years. This was helped by a couple of large shopping centre transactions including Landsec acquiring an additional 25 per cent share in Bluewater for £172 million and Henderson Park buying Glasgow’s Silverburn for £140 million. Looking at the year as a whole, the £6.6 billion transacted in 2021 is the highest annual figure since 2017. Colliers notes that half of this was deployed in the retail warehouse segment.
Industrial assets remained in high demand, with a further £2.1 billion transacted in the sector in December alone, bringing the annual total to more than £17 billion. This is over 50 per cent higher than the previous record achieved in 2017 of £11 billion. Colliers notes that sub-4% yields for prime assets in prime locations are now the norm with pricing still firming. The largest December deal was Valor Real Estate Partner’s acquisition of 14 Grade A industrial buildings at Beckton’s Gemini Park (London E6) for £155m at 2.13 per cent initial yield.
Over £17 billion was invested in the office sector in 2021, up on the £13.2 billion transacted in 2020, but this is still below the five-year annual average of £19.7 billion. Overseas capital accounted for 55 per cent of all activity by value in the office sector, down from the five-year average of 60 per cent, as wider global market conditions held back some potential cross-border investment. In December £2.5 billion was invested into offices, with the largest transaction being SEGRO’s purchase of 960,000 sq ft of office space at Slough’s Bath Road Central for £425 million. NatWest acquired One Hardman Boulevard for £292 million in an off-market deal in what is believed to be Manchester’s third largest ever office transaction.
A total of £18.3 billion was invested outside the office, retail, and industrial sectors in 2021, in line with the 2020 figure, but still over 10 per cent below the five-year average notes Colliers. While activity in the residential and student markets slowed from strong 2020 levels, activity in the hotel segment picked up slightly, with £2.2 billion transacted during the year (up from £1.5 billion in 2020).
Amongst the largest December deals in these sectors were London Square committing to the final three-acre residential development site in Nine Elms for £111 million and City Development agreeing a £110 million forward-funding deal for Birmingham’s Octagon, a 49-storey residential tower. Impact Healthcare closed two care home deals for a combined £52 million and several regional student schemes transacted, including Leeds (£66 million), Edinburgh (£47 million), and Cardiff (£36 million).