The regions are beating London for commercial property investment and the Thames Valley is the leader of the pack
The Q3 2014 UK Investment Transactions Bulletin released by national commercial property consultancy Lambert Smith Hampton reports that for the first time since Q1 2011, the volume of single asset regional transactions is greater than those for property located in London.
The Thames Valley and South-east region has seen double the level of investment of any other UK region cumulatively since Q1 2013.
The expense of London, where initial yields are at either cyclical or historic lows, the improvement in the UK economy, and by extension, occupier markets and the weight of money in the market are the reasons for this change. And when you consider the number of regional portfolio deals that transacted in Q3, the ratio of regional to London investment is almost 2:1.
Explaining how this step-change is affecting the market on the ground in the South East, the recipient of the highest percentage of outside-London investment, Nick Coote, Head of the Thames Valley for Lambert Smith Hampton comments: “The value of investments transacted in the Thames Valley during Q3 2014 totaled £526.40m - a significant increase on Q2 2014 (£218.74m) and also in excess of the same quarter in 2013 (£461m). “I anticipate Q4 returning similar positive results based on the current £93m+ of transactions currently in solicitors’ hands and a further £580m being marketed. 22 transactions have completed in Q3 with an average deal size in excess of £23m, highlighting that the demand has principally come from the UK institutions and overseas.”
Strong economic growth has combined with high levels of investor-demand for real estate and an improving occupier market to boost market activity towards pre-recession levels. Total returns for 2014 will be in the high teens, so for those who have been able to access the right type of stock in the right markets, at the right price, 2014 will be a ‘good year’. However, yields are below average in most sectors of the market, and this, coupled with uncertainties surrounding the forthcoming general election, an interest-rate rise and recent worries over the performance of some Eurozone and global economies, means the rate of increase in capital values will slow significantly in the next 12 months, There is still scope for further increases, but these will be driven mainly by rental growth, rather than further inward yield shift.
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