Capital into UK property: Investors make slow start to 2012 as deal volumes dip in Q1

This year has opened with a quieter first quarter in the UK and elsewhere for property investment. JLL reported subdued global volumes of $75bn, 23% down on Q1 2011. According to The Property Archive, Q1 2012 UK investment volumes were £7.53bn, 12.4% lower than the £8.6bn in Q1 2011 and 28.4% below the £10.52bn in Q4 2011.

Central London was strong with large deals in the City, Mid Town and West End. Overseas investors had the largest share of activity: almost half, or £3.52bn of deals. Overseas investors continue to prop up the UK investment market, accounting for 47% of the £7.53bn invested in Q1 2012. Their share is almost exactly the same as in Q1 2011, when they took a commanding position of 47.5% of all deals, investing almost £5bn.

US investors, including Blackstone and Tishman Speyer, spent the most, followed by Middle East and Far East buyers. They bought offices, mainly in central London, spending £2.6bn. US buyers spent £1.14bn and Middle East and Asian investors each spent just over £800m.

UK institutions were the second largest investors, at 24.7%, investing £1.86bn. The Q1 total was less than both the Q4 2011 figure, when investors spent £10.52bn, and the Q1 2011 figure, when investors bought £8.6bn of property (see graph). Agents hope activity will pick up in the second half of the year.

The most active sellers by volume were also overseas investors, which accounted for 28.3% of total sales, or £2.13bn, followed by  UK listed property companies at 19.2%, or £1.44bn of the total. They mainly sold offices. Most overseas sellers were from the US, with £650m of deals, then Germany (£630m) and Ireland (£530m). Irish investors have been net sellers for 12 consecutive quarters, with total sales of £5.86bn.

UK quoted property companies were  the largest net disinvestors in Q1 2012, at -£1.15bn, driven by big sales such as Land Securities’ disposal of Arundel Great Court. It was this group’s second consecutive quarter of net disposals (see graph).

In the three years since Q1 2009, Far East investors have been the largest net investors, at £4.82bn, followed by US buyers (£3.83bn) and Middle East buyers (£3.59bn). Average initial yields fell – particularly for industrial property – by 145 basis points from 9.35% to 7.9%. But central London yields have inched up 74bps, from 5.13% 12 months ago to 5.87%. “The best time to sell in central London appears to have passed,” says Dr Karen Sieracki, who analysed the figures.

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