Investment in commercial property across the West Midlands totalled £2.66bn in 2015 – 6% above the 2014 total of £2.51bn, according to new research published by national commercial property consultancy Lambert Smith Hampton (LSH).
The buoyant regional figures are revealed in the latest edition of LSH’s UK Investment Transactions report (UKIT), which also shows record figures for the UK market as a whole. Total activity of £64.3bn was seen during 2015, 4% above 2014’s total – a new annual record.
Across the West Midlands, the office sector accounted for 31% of the total volume invested at £822 million, while retail accounted for almost 28% of transactions with £744 million of acquisitions.
Industrial transactions stood at £453 million (17%), while £645 million worth of transactions were recorded in other sectors. The figures show that 2015’s performance was 54% above the five-year average and 49% above the region’s 10-year average.
Key deals in the region include the sale of the NEC for £307 million to LDC; Orion Capital Managers’ acquisition of Telford Shopping Centre for £250 million; Colmore Plaza, in Birmingham city centre, which was sold for £140 million to Ashby Capital LLP; and 7, 8, and 10 Brindleyplace, which was acquired by VGV for £131 million.
Adam Ramshaw, head of region for LSH in Birmingham and the East Midlands, said: “Although Q4 transaction figures for the West Midlands fell to £0.32bn from £0.63bn in Q4, the overall picture for the region remained positive.
“Demand remains strong in the West Midlands and, with an ongoing shortage of Grade A office space and industrial units across the region, there has been strong rental growth across these sectors,” said Adam.
“Birmingham continues to attract huge amounts of interest from businesses and overseas investors, thanks to the fact that it represents very good value for money compared with London.”
In the East Midlands, total investment volume for 2015 stood at £1.10bn, down 44% from £1.9bn in 2014. However, the 2015 performance remains just 1% down on the five-year average and 3% up on the 10-year average for the region.
The UKIT report reveals a record-breaking UK performance in 2015, with investment in commercial property totalling £64.3bn.
This was bolstered by a strong end to the year, with investment between October and December reaching £15.7bn, 23% higher than in the previous quarter.
Buoyant demand for alternative assets – such as hotels, student accommodation and healthcare – was a key driver of activity during 2015, with investment increasing to £14.8bn over the year, 53% above 2014’s total.
Overseas investors were instrumental to the record year. Inflows from foreign buyers rose by 9% year-on-year and accounted for a record 50% share of total UK volume. North America was the dominant buyer, making up 46% of overseas investment.
In addition, UKIT report reveals record investment into portfolios of £17.8bn over the course of the year. This was double the ten-year average and almost 25% greater than 2014.
Investment in London reached £26.9bn, 4% higher than in the previous year. Although volumes for individual assets located outside of the capital were lower than in 2014, healthy appetite for portfolios confirms that investor interest in regionally located stock remains very strong.
Ezra Nahome, CEO of Lambert Smith Hampton, said: “The commercial property investment market enjoyed a stellar 2015 and the outlook for the year ahead remains positive.
“Following a two year run, yield compression is easing and the prospects for further downward yield movement, particularly at the prime end of the market, are looking more limited now. We expect returns to reach 9% in 2016, down from 13% in 2015 (as we correctly predicted at the start of last year) but still well above the historic average.
“With rental income returning as the main driver of performance, pro-active asset management initiatives, such as investment of capex into office refurbishments in areas with few vacancies, are likely to offer the best prospects for investors. This means that knowing your market, almost at a building-by-building level, and understanding the dynamics of each locality, will be more important than ever.
“If anything, political developments arguably pose the greatest risks to the market. A period of uncertainty in the run-up to the UK’s referendum on the EU, coupled with a sense that some of the value has gone from the market, may weigh down investment activity. However, while 2015’s record annual volume is unlikely to be repeated this year, we should see activity to remain well above the recent average.”
