Commercial property investment transactions climbed to a six-year high in 2013, reaching a total of £44.7bn, according to the latest data from DTZ.
Investment surged in the second half of the year with nearly half of the yearly total spent in the last quarter alone. This resulted in a 31% year-on-year increase on 2012’s transaction volumes of £34.1bn.
One significant development was that more than half of the overall total (£22.9bn) was spent outside London, a reversal of the picture in 2012. The flood of money into the regions was driven primarily by domestic investors who also increased their overall outlay to a record £24.3bn across the year.
Foreign investors spent £20bn in 2013. Most of this – £14.2bn – was concentrated in Central London as overseas investors continued to seek prime assets, often secured off-market. However, their investment into the regions also increased.
Richard Yorke, Head of UK Research at DTZ, said: “Domestic investors’ willingness to spend matched the improving economic picture in the UK throughout 2013, resulting in their outlay increasing by 42% compared to 2012.
“Domestic investors are well placed to identify good opportunities across the UK and sought to exploit the record yield gap between London and the regions. Many UK firms sold London assets to fund their investment activity outside the capital, selling ‘high’ in London and buying ‘low’ in the regions.”
Asian investors continued to be the biggest foreign buyers of property in 2013, acquiring about £4.6bn, mostly in Central London. Conversely, domestic players were net sellers as they disposed of £28.7bn of property against £24.3bn of purchases, capitalising on demand for prime assets while seeking comparative value in the regions.
A notable feature in 2013 was increased investor appetite for larger deals, which resulted in a wave of large transactions in 2013. Over 120 deals worth £100m or more were concluded, driven by foreign investors’ acquisition of super prime London offices and regionally dominant shopping centres. Examples of the latter included CPPIB and Hammerson’s £307m purchase of the Bullring shopping centre in Birmingham, and AustralianSuper’s purchase of a 50% interest in thecentre:MK in Milton Keynes for £270m.
Nick Allan, Senior Director of Investment Agency team at DTZ in Bristol said: “There is undoubted momentum in the market. We estimate there is currently around £20bn of additional international capital seeking opportunities in London alone and increasing amounts exploring deployment into the regions as evidenced by recent overseas transactions in the core regional centres. With the economic environment improving, we expect transaction levels in 2014 to match last year’s total.
“Investors did well in 2013 pursuing value in the regions including the South West but the weight of investment is continuing to push down yields and is leading to lower expected returns so the window of opportunity is closing. We expect this to affect the relative attractiveness of UK markets especially with rising bond yields and expected interest rate rises in 2015 which could ultimately result in reduced investor interest and slightly lower volumes in 2015.”
Robert Parr-Head, Director of Valuation at DTZ in Bristol added: “There are also signs that the availability of debt is increasing as the banks are getting to grips with their poor performing loans and their confidence in the property market improves. Competition between lenders is increasing with more attractive terms available for borrowers that have a proven track record in property investment and a viable business plan.”
