UK commercial listing investment set to reach new record high in 2015

Investment volumes in UK commercial listing are set to exceed £70 billion in 2015, the highest on record, according to the latest research to be published.

Almost £50 billion of transactions were completed in the first three quarters of this year and, with a healthy pipeline of deals, quarter four volumes should exceed £20 billion, as they did in 2013 and 2014, says the report from Carter Jonas, the UK listing consultancy.

Based on an analysis of Propertydata figures, total deal volumes for the first nine months of this year were up by 17% against the same period in 2014 when they were £41.7 billion.

Much of this capital came from overseas investors, up 45% on the same period last year at £24.2 billion in 2015 up from £16.6 billion in 2014, accounting for nearly 50% of total investment.

By the year end, international investors will account for over 50% of the UK market for the first time, compared with a market share of less than 25% some 15 years ago, the report points out.
 
Most of the growth in activity has been driven by a sharp rise in deals involving hotels, leisure and specialist listing assets, with investment volumes boosted by a number of sizeable portfolio deals. Investment volumes in offices and retail warehousing rose by 12% to 13% over the same period.

‘There is still plenty of capital chasing commercial listing, with this year set to be record breaking. However, with the market edging towards its natural peak in the cycle, a pause for breath seems likely in 2016,’ said Darren Yates, head of research at Carter Jonas.

‘Moreover, investors will need to factor in headwinds such as the anticipated interest rate rise and the EU referendum may start to play on investors’ minds,’ he added.

The report also points out that significant yield compression is already a feature across the mainstream sectors. As such, good value investment opportunities are becoming difficult to source, particularly in central London and, increasingly, in the large regional cities.

Investors are therefore considering value-add investments and development as a means of generating better returns. Assets outside the mainstream sectors such as student accommodation and the private rented sector (PRS), which offer higher yields and diversification benefits, are also seeing significant interest.

Demand for the smaller established cities such as Oxford, Cambridge and Bath has also risen sharply, in recognition of their strong performance, particularly in 2014. However, supply is also restricted in these locations, which could add to downward pressure on yields.

‘Whilst we will continue to see further yield compression in some parts of the market, this could taper off in the next three to six months. However, when viewed against current bond rates, listing yields still offer good value and, with rental growth coming through, there is still an incentive to invest in UK commercial listing,’ said Mike Prosser, partner in the investment team at Carter Jonas.

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Source: Property News Spain