Alternatives investment dominates Q1 2018 as hotel volumes rise 259% year on year

Alternative assets dominated the UK investment landscape in Q1 2018, with the hotel sector seeing investment volumes of £1.2bn, 259% up on Q1 2017, according to new research published by BNP Paribas Real Estate. Total investment volumes reached £12.7bn, down just 3% on Q1 2017.

The hotel segment was the top performer in Q1, with total returns of 4.9% (IPD UK Monthly Index), building on stellar total returns in 2017 of 14% (IPD UK Annual Index). The wider alternatives sector produced the two largest deals by lot size in the first quarter: the acquisition of SACO, a serviced apartment business, by Brookfield Asset Management from Oaktree Capital Management for circa £430m, and the acquisition of the Enigma Portfolio, a UK student housing portfolio, by CBRE Global Investors from the Curlew Student Trust for circa £520m.

Richard Harris, Head of Alternative Capital Markets at BNP Paribas Real Estate said:

“Changes in urban, demographic and technological trends are pushing alternative assets ever further onto the real estate industry’s radar, with a surge in appetite for the sector in recent years as investors capitalise on strong total returns and the benefits of diversification in an uncertain political and economic environment.”

“Looking forward, we expect to see continued interest in the sector, together with industrial and logistics, as investors continue to focus on the impact of wider structural change in the economy and its impact on property markets.”

Alongside alternatives, investor appetite for industrial and logistics assets remains robust, with volumes of circa £1.96bn, 17.1% ahead of the £1.67bn transacted in the same period last year and a new record for Q1. The sector posted total returns of 4.3% (IPD UK Monthly Index), building on a strong 2017 in which it saw the highest total returns of all sectors at 20% (IPD UK Annual Index).

Overseas investors continued to dominate the market, accounting for 39% of volumes, albeit a drop from the 49% share in 2017.Despite the fall in investment volumes, data from the MSCI IPD UK Monthly Index showed commercial property rental values and yields remain robust in the face of ongoing political and economic uncertainty. All Property saw market rental growth of 0.4% during Q1, and the All property equivalent yield impact came in at a positive 0.8%