£3.5billion invested in commercial property in September – retail is star performer with five-month high

UK retail investment volumes picked up in September to hit £755 million, as office and industrial activity remained steady notes Colliers in its latest Property Snapshot report.

A total of £3.5 billion was invested across commercial real estate classes in September, down on the £4.1 billion recorded in August. The year-to-date investment figure of £41 billion is up on both the corresponding 2019 (£36 billion) and 2020 (£30.4 billion) levels and in line with the five-year average notes the firm. Overseas capital accounts for more than half of all activity by value so far this year.

Retail investment reached a five-month high of £755 million in September, 38 per cent above the five-year monthly average. A total of 12 retail warehouses traded during September, amounting to £180 million. The largest transactions were M7 Real Estate’s purchase of Lombardy Retail Park in Hayes for £43 million and UKCP REIT’s acquisition of Manchester’s Trafford Retail Park for £33 million. Activity also picked up in the supermarket segment, with £180 million invested; 50 per cent above the monthly average. Realty Income Corporation took a 69,400 sq ft Tesco in Littlehampton for £53 million, while Supermarket Income REIT acquired five standalone supermarkets for a combined £113 million.

Tom Edson, head of Retail Capital Markets at Colliers, commented: “As the retail sector continues to adapt to changing consumer habits it is no surprise that investors have turned their attention to retail warehouses which typically benefit from strong catchments and space for an established click and collect or ecommerce function. Investors continue to seek well performing supermarkets, having taken note of the resilience of this asset type during the pandemic.”

Colliers notes that despite slowing from £1.4 billion in August to £1.2 billion in September, monthly office investment sales volumes remained above the £1 billion mark for the fifth month running. In the year-to-date, office investment stands at £11.1 billion, up on corresponding 2020 levels (£8.1 billion) and only slightly below 2019 levels (£11.7 billion).

Office yields remain firm, with some London assets trading at sub-4 per cent and regional offices at sub-5 per cent. Examples include Kerry Properties’ purchase of 57 St James’s Street in London SW1 which sold for £145 million at 3.2 per cent initial yield and Ashtrom Properties UK’s acquisition of Birmingham’s Colmore Gate for £40 million at 4.3 per cent initial yield. Four of the five largest deals in Q3 were offices, led by JP Morgan’s purchase of 160 Old Street in London for £182 million.

Industrial monthly investment volumes were stable in September, with more than £875 million deployed in the industrial sector. During the first nine months of the year, a total of £12.3 billion was invested, beating every full-year figure with one quarter still to go. While portfolio deals have recently accounted for large shares of investment activity, the six largest deals by value in September were all standalone assets. The largest such transaction was M&G Real Estate’s acquisition of a 316,300 sq ft distribution warehouse in Belvedere which sold for £92 million and is currently occupied by Asda.

A further £628 million was invested outside the traditional office, retail, and industrial segments last month, down from the £1.1 billion transacted in August. The residential sector attracted £260 million, while £240 million was deployed in leisure assets and £70 million was invested in the medical segment. Federated Hermes acquired the Premier Inn on London’s 255-257 King Street for £91 million and Gem Hotels Group bought 92 serviced apartments at Wardrobe Court, also in London, for £70 million. A couple of larger Build-to-rent (BTR) schemes were sold in Manchester, with CDL Hospitality Trusts purchasing The Castings scheme (352 units) for £73 million while Barings Real Estate acquired The Trilogy (232 units) for £53.5 million.

Paddy Allen, head of Operational Capital Markets, at Colliers added: “We are seeing investors continue their hunt for scale when it comes to operational assets and the two big deals in Manchester are illustrative of how well-located schemes in a thriving area are high on investors’ wish lists. As we look ahead to the end of the year and into 2022, I expect there will be a real push for best-in-class BTR opportunities that can be backed up by strong market fundamentals offering real opportunities for investors with a long-term view of the market.”