Capital into UK property: Deal volumes fall back after nearing 2007 peak

  • Investment volumes were down in Q1 2011 to £8bn from £13.2bn* in Q4 2010, but were still higher than Q1, Q2 and Q3 2010.
  • Over 60% of buyers were UK institutions and overseas investors.
  • The Irish and Germans continued to be big sellers, as were private property companies.
  • Initial yields trailed upwards as investors began to move up the risk curve.

Deal volumes in Q1 2011 were £8.09bn, a drop from £13.24bn* in Q4 2010, which had been the highest volume of buying since Q2 2007. However, the 302 deals closed in Q1 2011 was almost as many as in Q4 2010, and the £8.01bn volume was higher than Q1 2010 (£6.14bn), and Q2 and Q3 2010. UK institutions were the largest investors, at 34.7% of total investment activity, followed by overseas buyers, at 27.9% (see UK investment chart). US investors were the most active overseas buyers, spending £650m, followed by Scandinavians (£492m) and Middle Eastern buyers (£355m).

UK institutions and overseas buyers were  net investors, the former by £833m. So were UK REITs and quoted property companies,  to the tune of £626m in that quarter, buying mainly shopping centres and retail warehouses. UK institutions were net investors in retail but net disinvestors from offices, especially in central London. Private property companies sold £910m  of property to take profits. The Irish and Germans were also net disinvestors, mainly selling central London offices. The Irish bought almost nothing, but accounted for 47%, or £810m, of overseas investors’ total £1.72bn of sales. It was Irish investors’ eighth consecutive quarter of net disinvestment.

Owner-occupiers, notably Tesco, continued to take advantage of chances to sell, ofloading a net £636m of property (see table). “The high level of buying and selling for UK institutions indicated a realignment of portfolios,” says Dr Karen Sieracki of Kaspar Associates, who analysed the figures. Initial yields have begun to rise as investors move up the risk curve for certain types of assets. The biggest change from the fourth quarter has been offices, of 75 basis points, followed by industrial of 65bps (see line graph). The average yield for Q1 2011 deals was 6.93%, up from 6.63% in Q4 2010, despite central London initial yields decreasing again, from 5.58% to 5.42%.

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*Re-stated figure; initial figure at the start of January 2011 was £13.14bn. The Property Archive, run by David Adams, collects data on UK investment deals worth more than£1m in value. For more information, go to: www.propertyarchive.co.uk  

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