UK's Q1 Commercial Real Estate Transactions Report

Posted by Datscha on 20th June 2019 -

Transactions

Commercial property transaction volumes during Q1 2019 totalled £12.1bn*. This is 40% lower than the same period in 2018 and has been driven by the UK’s delay from leaving the EU. There were two notable deals that completed during the quarter (the £1.2bn sale and leaseback of Goldman Sach’s HQ and the £1.6bn sale of Battersea Power Station) but those were announced during 2018. Excluding those deals, volumes would have fallen by 54%. We expect this trend of declining volumes to continue throughout the year until a decision has been made on the UK’s planned exit from the EU.

Retail Sector

The retail sector continues to drag down transaction volumes in the UK. Total volumes declined by 57% compared to the same period last year (£1.5bn in 2019 vs. £3.5 bn in 2018). Some investors are keen to reduce their exposure to retail assets. For those assets that are being transacted, many of them (particularly shopping centres) are being sold at significantly lower prices than they were originally purchased for. For example, the Nicholson Shopping Centre in Maidenhead was purchased for £37m in 2015 but was sold for £25m/4% net initial yield in January 2019 after the owners entered receivership.

Office Sector

Office transactions in the UK dropped by almost a quarter during Q1 2019 compared to Q1 last year (from £6.52 bn to £4.98bn). The decline in London was much lower than most other regions of the UK where volumes only dropped by seven percent (from £4.4bn to £4.1bn) highlighting that this sector is still a desirable asset class. However, as previously mentioned, the Battersea Power Station and Goldman Sachs deals were announced last year but didn’t complete until Q1 therefore the decline in volumes would have been worse had it not been for those completions. Office transactions in Wales had the largest decline (87%) falling from £101m in Q1 2018 to £14m in Q1 2019.

London

During Q1 2019, transactions* in London totalled £7.4bn which was 11 percent lower compared with the same period in 2018. Transactions in the capital accounted for 61 percent of all UK activity. Almost two thirds of all investment in the City of London came from overseas buyers. The majority of this capital came from Asia, with Hong Kong investors topping the list of all foreign investors in the City. We expect prime office assets in Central London will remain in demand from overseas investors during 2019 but supply will remain constricted until an outcome has been reached on Brexit.

Transaction volumes* by region Q1 2019 *

Transactions with a value of over £3m. Includes portfolio deals Region Transaction value £ bn % Change year on year London 7.4 -12% South East 1.05 -62% Eastern 0.96 -13% North West 0.51 -69% Yorkshire & Humber 0.49 -58% West Midlands 0.43 -61% Transaction volumes fell in every region of the UK during Q1 2019 apart from the North East and Northern Ireland.

However the total volumes in these regions were very low compared to the rest of the UK. The largest single asset deal was the forward funded purchase of an Amazon logistics unit in Durham. The two million sq.ft asset was purchased by Tritax Big Box REIT for approximately £147m. In the Eastern region transaction volumes in the industrial sector increased by over 50% compared with the same period last year. This was driven by M&G Real Estate’s £145m purchase of the RD Park in Hertfordshire and Legal & General’s 50% acquisition of a data centre in Harlow. Overseas investment in the regions has fallen, on average, by over 70% compared with last year, (from £4bn to £1.14bn) . Investors from the Americas had the sharpest decline with volumes plummeting from £2.6bn to £230m.

DATSCHA

Datscha is the leading provider of property research intelligence, property information and analysis of commercial real estate. We operate in Sweden (2000), Finland (2010) and the UK (2015), and have over 900 clients (including global property firms, developers, banks, surveyors and all those involved in commercial property) in seven different countries. Datscha’s core aim is to collect, match, aggregate and visualise public and proprietary real estate data in the market’s most modern and easy to use web based service. We have been very successful in the Nordics for over 10 years; we now have over 80% of market share and with a customer satisfaction level of over 95%