New data from Cushman & Wakefield shows that despite a turbulent year, investment into UK real estate saw a strong end to 2019 with £17.6 billion of assets transacted in the final quarter led by funds (£6.1 billion) and REITs (£4.4 billion).
Jason Winfield, Head of Capital Markets at Cushman & Wakefield, said: “Overall, investment into UK real estate in 2019 reached £56 billion – a 13% fall on 2018 – but when you consider that 2019 saw the UK extend its deadline to leave the EU three times, vote on Brexit 17 times, appoint a new prime minister and undertake a turbulent general election; that figure is very respectable. The strong final quarter, which was arguably the most politically stable of 2019, demonstrates just how powerful a little bit of certainty can be in unleashing demand.”
London offices saw one of the largest accelerations in investment activity of all sectors following the general election. With many potential buyers still looking for assets and strong competition for space among occupiers, London offices could be the top performing investment sector in 2020.
While London offices may enjoy a bounce in performance in 2020, a structural shift into alternative real estate is likely to exceed a third of total volumes. Alternatives and development sites were popular investments in the fourth quarter, accounting for almost half the total at £8.2 billion.
Greg Mansell, Head of UK Research & Insight at Cushman & Wakefield, said: “The appetite for alternatives and development opportunities highlights how investors are looking beyond core investment and the main sectors to achieve their goals. Entity-level deals and large portfolios are driving much of this increase, as they did throughout 2019. It also shouldn’t be missed that retail volumes picked up in the fourth quarter at £1.9 billion and has been further evidenced in early 2020 by an uptick in investment activity. This increase is a reminder that liquidity in the retail sector can improve if asking prices are realistic.”
Overall, property yields have remained low with the help of falling government bond yields (initial yields averaging at 5.6%). Across the UK, pricing continues to polarise between assets with low-risk income (high occupancy, good covenants and long leases) and high-risk income, with the latter seeing their yields rise further.
The industrial sector saw a 30bp rise in yields in 2019, suggesting that investors are being more conservative with their rental growth assumptions while speculative construction remains high; although prime industrial yields remain at all-time lows.
Jason Winfield added: “Investors are aware that 2020 will be a key phase of Brexit and even though much political uncertainty has dissipated, a great amount of change still lies ahead. For the more conservative investors, this could inhibit volumes for yet another year. However, for the growing number who are moving up the risk curve, 2020 could be the year to strike before clarity on Brexit sees competition swell.”