A total of £3 billion was invested into UK commercial property in March, taking the Q1 2021 total to £7.5 billion according to Colliers.
The firm notes in its March Property Snapshot that despite volumes being dampened, with the Q1 figure being almost half the five-year quarterly average of £14.2 billion, it was still an improvement on the £5 billion transacted in the first national lockdown. Overseas investors accounted for half of all activity in the first quarter.
The transactions took place against the backdrop of a surge in optimism as the UK successfully rolls out its vaccine programme and lockdown easing steps up a gear. Oliver Kolodseike, Deputy Chief Economist at Colliers, comments: “Not only have we seen a slight uptick in investment volumes and an increase in positivity but there are also ‘upbeat’ economic forecasts coming from the OBR, OECD, Bank of England and HM Treasury. Previous forecasts suggested that the UK economy would return to its pre-pandemic level by mid-2022. The latest forecasts suggest this could occur by the last quarter of 2021, a boost as we head into the next three quarters and the start of lockdown easing.”
In March, appetite was spread across sectors with the three largest deals occurring in three different sectors (office, PRS, student housing). In the office sector around £700 million was deployed, below the 2020 monthly average of £1.1 billion. London accounted for three of the four largest deals by value, the largest being the sale of Athene Place on 66-73 Shoe Lane to Wing Tai Properties for £255 million at 4.1 per cent initial yield. Outside of the capital, Belfast’s Merchant Square was sold to a Saudi investor for £87 million at 5.23 per cent initial yield in Northern Ireland’s largest ever single asset office deal.
Investor appetite for industrial assets remained strong with volumes almost reaching £1 billion in March, 15 per cent above the 2020 monthly average. The largest deal by value during the month was the sale of Bedfont Logistics Park at Heathrow Airport to Blackstone Real Estate for £118.5million, reflecting a net initial yield of 3.7 per cent. Pricing remains firm with monthly MSCI data showing further yield compression across all industrial market segments.
Retail investment saw a slight improvement, with £274 million transacted in March, up on the £230 million invested in February. Key deals included Motocomb Estates acquiring 51-52 New Bond Street for £95.5 million at 3.1 per cent initial yield which is home to Armani’s flagship store and includes office space. Realty Income Corporation purchased a six-asset portfolio including retail warehouses, an Aldi and three KwikFit service stations for £40.9 million at 5.9 per cent initial yield.
In the alternative sector it was student accommodation that attracted the most investment, notes Colliers. The student accommodation sector attracted £190 million of investment in March which brought the Q1 total to £685 million; the highest quarterly figure since the sale of the iQ portfolio in the first quarter of 2020.
Paddy Allen, Head of Operational Capital Markets at Colliers added: “The start of the year has been a particularly strong one for the student accommodation sector which is a reflection of the appetite we have seen from investors. Despite the pandemic, the sector continues to be attractive due to its long term potential, and an increase in student numbers is expected as the impact of COVID proves to be circumstantial and not structural.”