Investment in commercial property across the East Midlands totalled £1.10bn in 2015 – down from £1.9bn the previous year – according to new research published by national commercial property consultancy Lambert Smith Hampton (LSH).
However, the 2015 performance remains just 1% down on the five-year average and 3% up on the 10-year average for the region.
The regional figures are revealed in the latest edition of LSH’s UK Investment Transactions report (UKIT).
Across the East Midlands, industrial transactions stood at £467 million (43%), while retail accounted for almost 36% of transactions with £389 million of acquisitions.
The office sector accounted for 4% of the total volume invested at £48 million, while £191 million worth of transactions were recorded in other sectors
Adam Ramshaw, head of region for LSH in Birmingham and the East Midlands, said: “Although Q4 transaction figures for the East Midlands fell to £0.08bn from £0.3bn in Q3, the overall picture for the region remained positive.”
The UKIT report reveals a record-breaking UK performance in 2015, with investment in commercial property totalling £64.3bn.
Buoyant demand for alternative assets – such as hotels, student accommodation and healthcare – was a key driver of activity during 2015, with investment increasing to £14.8bn over the year, 53% above 2014’s total.
Overseas investors were instrumental to the record year. Inflows from foreign buyers rose by 9% year-on-year and accounted for a record 50% share of total UK volume. North America was the dominant buyer, making up 46% of overseas investment.
Ezra Nahome, CEO of Lambert Smith Hampton, said: “The commercial property investment market enjoyed a stellar 2015 and the outlook for the year ahead remains positive.
“Following a two year run, yield compression is easing and the prospects for further downward yield movement, particularly at the prime end of the market, are looking more limited now. We expect returns to reach 9% in 2016, down from 13% in 2015 (as we correctly predicted at the start of last year) but still well above the historic average.
“With rental income returning as the main driver of performance, pro-active asset management initiatives, such as investment of capex into office refurbishments in areas with few vacancies, are likely to offer the best prospects for investors. This means that knowing your market, almost at a building-by-building level, and understanding the dynamics of each locality, will be more important than ever.
“If anything, political developments arguably pose the greatest risks to the market. A period of uncertainty in the run-up to the UK’s referendum on the EU, coupled with a sense that some of the value has gone from the market, may weigh down investment activity. However, while 2015’s record annual volume is unlikely to be repeated this year, we should see activity to remain well above the recent average.”
