London’s commercial property market remains at the top of the global shopping list for equity, according to C&W’s latest prime yields monthly briefing.
Prime property yields averaged 5.75% in February and were unchanged on the month – ending a losing streak that started last August. However, prime yields have moved out by only 7bp since their low point last year and stand roughly in line with their 10 year average (5.72%).
Overall, prime yields are still 133bp higher than they were before the credit crunch hit, but the scale of recovery varies significantly around the market, with core sectors strongly ahead of the second tier and London ahead of the rest of the country. London shop yields for example are back to their previous cyclical low of 4% (or lower on Bond Street) while London offices are just 25bp higher in the West End and 75bp higher in the City.
The strength of London is fully reflected in investment volume data, with RCA showing Greater London to have accounted for 57% of all UK activity last year, up from 51% in 2010. London volumes grew by 18% while activity away from the capital fell by 6.8%.
London was the second most active market globally in 2011, behind New York. Only two other UK centres saw significant volumes over the year, with Manchester ranked as the 33rd busiest global market with volumes of £2.3bn (7% of the UK total) and Birmingham ranking 49th globally, with volumes of £1.2bn, (3.6% of the UK total). Other notable UK investment targets in 2011 included Reading, Bristol, Glasgow and Leeds.
London’s dominance is most marked in the multifamily, office and hotel markets where it accounted for 80%, 77% and 65% respectively of all UK activity. In the retail market London’s investment share is considerably lower – albeit increasing –with the capital taking a third of last year’s trading volume. Manchester was the next most significant UK city, with a 14% market share thanks to the sale of the Trafford Centre. In the industrial market, London accounted for just over a quarter of all activity in 2011, with Birmingham in the number 2 spot with a 7.5% market share.
According to David Hutchings, Head of European Research at Cushman & Wakefield, “London accounted for 57% of all UK trading in 2011 and whilst the year has started with some caution, its dominance is set to grow further this year, helped perhaps by the spotlight of the Olympics but more notably by its position as a global hub for retail and commerce.
“While the UK economy is forecast to be slow at best, stronger growth in emerging markets and in the US will be positive for the business and activity that flows through London. Global competition is of course high but with a still increasing volume of institutional and private sector capital seeking low risk, secure long-term homes for their money, London will be a clear winner and we see its market share rising past 60% this year.”
David Erwin, CEO of UK Capital Markets said: “London is clearly at the heart of the UK’s investment market and remains at the top of the global shopping list for equity destined for the real estate market. What is encouraging to see is that the regions are now beginning to benefit from the same money with global investors chasing assets such as Green Park, Meadowhall and the various logistics portfolios which have been sold recently. There is real depth to the UK’s prime market which looks set fair for 2012.”