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Banks, Financial

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Banks

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Categorized | Property

UK commercial property investment pans out


Posted on January 31, 2016

31/05/13. LONDON STREET SCENES (FOR ANDY MEARS). PICTURE SHOWS THE HERON TOWER, THE TALLEST BUILDING IN THE SQUARE MILE. CREDIT: DANIEL LYNCH. 07941 594 556. www.lynchpix.co.uk

Investment in UK commercial property declined 19 per cent in the second half of 2015 from a year earlier, according to new data that confirm suspicions of a slowdown in the market.

Some £32.7bn was invested into the sector in the six months to the end of December, down from £40.5bn in the same period of the previous year, figures from the information provider CoStar Group show.

    “The commercial property gold rush might be over,” said Richard Yorke, director of market analytics at CoStar, adding that investment was especially slow in the fourth quarter.

    The year as a whole was the second strongest on record, with £67.5bn of investment, 5 per cent down from the previous year’s high.

    But a changed atmosphere among investors became evident when the sale of Heron Tower, in the City of London, to the Chinese insurer Anbang fell through in September, while another major asset, Devonshire Square, was put up for sale but then removed from the market. A series of other properties on the market for about £100m were subsequently withdrawn.

    “There were a few deals that did not happen late last year because investors were unrealistic about pricing, which in general was quite racy,” said Mr Yorke. “We may have reached the top in terms of pricing.”

    £32.7bn

    Invested in commercial property in the six months to end December 2015

    But he said volatility in China, falling oil prices affecting levels of Middle Eastern investment, and jitters about a potential UK exit from the EU had also cut into investment levels.

    Investors may pause ahead of the referendum on the UK’s membership of the EU, which is expected this year, as they did ahead of the 2014 referendum on Scottish independence from the UK, he added.

    Sir George Iacobescu, chairman of Canary Wharf group, said investors were also wary of the currency risk posed by the EU vote.

    £40.5bn

    Invested in commercial property in the six months to end December 2014

    “The hiatus that you see today is in part because of Brexit,” he said. “People are thinking twice because if the currency goes down you will suddenly see your investment fall in value.”

    The impact of falling oil prices was seen last year in the levels of Middle Eastern money flowing into the market. The Qatar Investment Authority bought Canary Wharf with Canadian investors Brookfield in a £2.6bn deal in January 2015, but with that deal excluded, Middle Eastern investment dropped to £1.6bn, its lowest level since 2012.

    Investors shifted their focus to the English regions: some £3.2bn flowed into the regional office market, the highest level since the 2008 financial crisis.

    “We may have reached the top in terms of pricing

    – Richard Yorke, director of market analytics at CoStar

    They are now turning to the question of what will happen in the market if pricing has indeed passed its peak. Mr Yorke said the UK property market’s size and liquidity would continue to attract investors.

    “Most observers expect yields have bottomed out and probably will start to drift up at the beginning of 2017, but don’t expect a big correction,” Mr Yorke said.