Capital into UK property: 2011 failed to make good on expectations of optimistic first half

  • Total investment volumes in 2011 fell back to £32.6bn, a 14.8% decline on 2010’s £38.3bn.
  • Total volume for the last quarter was £10.5bn – up on Q3 2011’s £7.2bn, but lower than Q4 2010, with over £13bn.
  • Overseas buyers and UK institutions accounted for two thirds of all purchases.
  • Overseas investors bought £11.5bn of UK property in 2011, down from £12.2bn in 2010.
  • UK institutions purchased £9.2bn of property last year (£11.7bn in 2010).
  • Offices were the favoured sector (31% of deals) but it was a significant year for alternative sectors such as student housing, hotels and motor-related properties, which together accounted for almost 15%.
  • Property deal volumes last year disappointed as the optimism of the first half faded, fuelled by worries about economic recession and the eurozone. Although there were some large deals in the last quarter (see table) – the year’s best, with a respectable £10.52bn of activity – the overall year was down on 2010.
  • Total investment volumes according to The Property Archive were £32.63bn – a 14.8% decline on 2010’s £38.3bn. There were 1,344 transactions for the year, with an average lot size of £24.28m.
  • UK institutions and overseas remained the main players. In 2011, overseas investors saw 35% of total purchasing activity (£11.52bn), followed by UK institutions at 28% (£9.16bn).
  • In Q4, overseas investors (40% of them Far East and Middle Eastern) took a commanding position of 47.5% of all activity, followed by UK institutions at 16.6% (see top graph). Together the groups still comprised almost two thirds of all investment activity, which was consistent throughout the year, but by Q4 2011 the relative proportions were very different. UK institutions picked up their sales to £3.1bn in Q4, from an average £1.92bn over the first three quarters.#
  • The overseas investors bought mainly offices, with Blackstone very acquisitive at year-end in distribution (see table opposite). For the UK institutions, the preferred sectors were retail warehouses and offices, “with retail warehouses seen as more of a defensive play for retail exposure” says
    Dr Karen Sieracki, who analysed the figures.
  • Ireland continued to dominate overseas selling, at 38% or £3.2bn of the £8.5bn total. It was followed by the US at 27.2% (£2.31bn) and the Germans at 11% (£920m) – several German funds have redemption issues.
  • Irish investors have been net sellers now to the tune of £5.33bn for 11 consecutive quarters; the £3.14bn sold in 2011 was inflated by NAMA starting to make major sales in the UK.

real 1

real 2

REAL 3

REAL 4

What will 2012 bring?

It is more difficult to find opportunities as global events colour prospects across all the asset classes, thus making investors cautious and risk-averse in such an uncertain environment.

This is also an election year for at least eight countries – from some of the biggest property markets, including the US, France, Russia and China, to Mexico, Taiwan, Egypt and Venezuela – each having their own role on the world stage.

On a not entirely frivolous note, it is the Chinese year of the dragon, which can be quite tumultuous in both up and down terms.

Low interest rates provide support for property but everything rests on the relative security of the income. In following the money, the places where there is greater economic growth – the emerging economies – want relatively safe havens for those gains and the UK, particularly central London, still fulfils that role.

For the UK domestic investor, the need for income and preservation of capital also continue to be important themes.

The degree of overall capital loss forecast for property in 2012 varies from 0% to 10%, which Sieracki says is worth noting “is a much narrower range than for the other asset classes”.

2012

2012, 2

2012, 3

 

 

SHARE