Demand for regional stock reached a two year high in Q2 2013 with £3.24bn invested in commercial property outside of London (excluding portfolios) – according to national commercial property consultancy, Lambert Smith Hampton’s (LSH) research, UK Investment Transactions Q2 2013. Investment volumes in Yorkshire were significantly high due to a number of notable transactions.
Investment volumes soar across Yorkshire
Deals in the region reached approximately £334m in Q2 2013, representing an increase of 267% on Q1 2013, at £91m. This is due to a number of large deals including Legal & General’s purchase of The Light in Leeds for £91 million, the sale of Vanguard Shopping Park in York for £62.55m,Tritax Assets purchase of The Range in Doncaster for £37m and the £42 million sale of The Green student scheme in Bradford.
Ezra Nahome, CEO of LSH, said: “Central London offices still remain the most popular asset class – accounting for over 50% of the quarterly investment total. But regional investment volumes are on the up, reaching their highest point since Q3 2011.
“This activity can be attributed to the slight easing in the debt markets, an improvement in sentiment towards the regions, momentum behind the economy starting to grow and investors taking advantage of historical highs in the yield gap between London and the regions.”
It was not just the regions which saw an increase in Q2, but an up-turn in all activity was recorded with £8.24bn recorded – a 2% increase on the previous quarter. This level of investment was last seen in Q1 2011.
UK buyers rule the regions
The major investors in regional property were UK buyers – accounting for 89% of the quarterly total. In Yorkshire, the figure wasjust under 60%. Ezra explained: “Many UK buyers were either priced out of, or see little value in, the ultra competitive Central London market and are looking for opportunities elsewhere.”
Deals across Yorkshire recorded an average yield of 8.3% in Q2 2013 compared with Q1 2013 where this figure was closer to 12.1%
Trading for small to medium assets increases
This move towards the regions comes in conjunction with an increase in trading in small to medium assets. In Yorkshire, Q2 2013 saw double the number of deals for assets between £10m and £30m in Q2 in comparison with Q1 2013. The average deal size also rose from £7.6m in Q1 2013 to £20.9m Q2 2013, in contrast to the rest of the UK where the average deal size fell from £28m in Q1 2013 to £16m in Q2 2013.
Total number of deals across Yorkshire by price bracket
Source: Lambert Smith Hampton
Retail and Leisure sector continues to trade well
Continuing the theme set throughout 2012, the retail and leisure sector was once again Yorkshire’s most heavily invested-in asset class, with over £195m transacted in Q2 2013 compared with £73m in Q1 2013 – a trend which has continued for five consecutive quarters.
Change in fortune for office and industrial sectors
The region’s industrial sector also performed extremely well, with the total volume transacted reaching its highest level for two years to around £58m in Q2 2013, compared with £9.5m in Q1 2013.
The total office investment volume across Yorkshire also increased dramatically, with £38m transacted in Q2 2013 compared to £8m in Q1 2013.
Total volume invested across Yorkshire by sector (£m)
Source: Lambert Smith Hampton
Abid Jaffry, Northern Head of Capital Markets at LSH, added: “The regional investment market is currently dominated by UK investors who have been priced out of the Central London market and are seeking to take advantage of the greater value that can be achieved within the regions. There continues to be a large amount of competition for prime assets due to the lack of stock being brought to the market. A significant proportion of the transactions were of considerable size which is indicative of investor conditions across the North and highlights the groundswell of cash in the market at present.”
Central London offices still number one asset choice
Showing no sign of waning, investment in Central London offices grew by 33% between Q1 and Q2 to £2.83bn. This accounted for just over 50% of the quarterly investment total in the quarter. In a continuation of the long running trend, overseas investors were once again the largest buyers of UK commercial property in Q2. However, quarterly investment levels are the lowest they have been since Q1 2012 at £900m.
Concluding, Ezra said: “London will remain the driving force behind the market for the rest of 2013, with demand sustained by overseas money. However, investor appetite for regional stock is also expected to increase as the economic recovery, combined with attractive pricing and a gradual easing of the debt market have led to an improvement in sentiment.”
