Record quarter for investment in UK Commercial Property Market

Thu, 01/29/2015 - 15:58 -- jamesstuart

• Investment volume of £20.5bn in Q4 2014 was a record for a single quarter
• Total volume for 2014 was £59.6bn, falling narrowly short of the 2006 high
• Investment in the regions reached £21.1bn in 2014, up 41% on 2013
• The All Property transaction yield stands at 6.11%, its lowest since Q2 2008
• All Property returns reach 19.3% in 2014, their highest since 2006

2014 was a stand-out year for the investment market. £20.5bn of commercial property assets changed hands in Q4 2014, the highest volume ever seen in a single quarter. This propelled investment for 2014 as whole to £59.6bn, the highest annual total after 2006. The resurgence of institutional investors and improving economic sentiment beyond the capital saw investment into the regions reach £21.1bn for the year as a whole – up 41% on 2013. While Q4 2014 saw a substantial £9.3bn of inflows into London, 2014 investment into the capital fell 7% short of 2013’s record annual total.

The All Property transaction yield moved in by 2bps during Q4 to stand at 6.11%, its lowest level since Q2 2008. While the All Property transaction yield was broadly stable during the second half of 2014, it stands 43bps lower than 12 months ago. This underlines the continued strength of demand for UK commercial property, with All Property returns reaching 19.3% in 2014, its strongest annual outturn since 2006.

2014 will be remembered as a stellar year for UK commercial property, with regard to both the volume of activity and the extent of yield-driven returns. The outlook is positive for 2015, although performance is expected to moderate to more sustainable levels, with the pace of capital growth easing down and income growth returning as the main driver of property performance. The prospects for further yield compression are more limited over the year ahead – prime yields are either at or close to their historic lows, while a degree of electionrelated uncertainty is entering the market. Encouragingly, we expect 2015 to mark the return of meaningful, aboveinflation rental growth beyond London and the South
East. This is especially true of offices and industrial, where supply is becoming increasingly constrained.

(Source Lambert Smith Hampton)