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Overseas investment into UK commercial property reached highest market share ever at 50 per cent in 2020

The share of overseas investors in the UK commercial property market reached its highest ever level in 2020, accounting for 50 per cent of the GBP44 billion total for the year.

December saw investment into the UK commercial property market reach GBP6.7 billion, more than 80 per cent above the 2020 monthly average. The industrial and office sectors accounted for more than GBP2 billion of investment each in December, driven by several high-profile office deals in London and three large industrial schemes.

John Knowles, head of National Capital Markets at Colliers International, says: “The continued interest from overseas investors in 2020 is testament to the value that is still to be found in UK commercial property. Despite all the negative headlines around the future of the office, December’s investment volumes into the sector show that there is still capital ready to invest in well located, core stock. It will come as no surprise that industrial had a particularly strong December as appetite remains unabated, and I expect that the sector will still be the most in demand well into 2021.”

The GBP2.3 billion invested in offices in December drove the annual total for 2020 to reach GBP13 billion in the sector, 27 per cent below the 2019 figure. Last year, overseas capital accounted for 62 per cent of investment into offices, up from a 58 per cent share in 2019. The largest December deal was Sun Venture’s purchase of 1&2 New Ludgate for GBP552 million at a 4 per cent yield. The next largest deal by value was Allianz Real Estate’s purchase of the Marylebone Portfolio for GBP401 million at a 4.32 per cent initial yield.

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Industrial investment reached GBP2.9 billion in December, as monthly investment volumes broke through the GBP2 billion mark for only the second time on record. The 2020 annual figure of GBP9.3 billion means that the sector’s share of all CRE investment rose to 21 per cent, up from 14 per cent in 2019 and the highest on record. December’s largest deals include Blackstone Real Estate’s acquisition of the EPIC industrial portfolio for GBP335 million, AIMCo’s purchase of the Marlin Portfolio for GBP260 million, (4 per cent initial yield) and the sale of the Metro Portfolio to InfraRed Capital Partners for GBP50.75 million (4.75 per cent initial yield).

Around GBP500 million was invested across the retail sector in December, roughly 30 per cent above the 2020 monthly average of GBP370 million and slightly higher than the 2019 monthly average of GBP450 million. Several larger retail parks traded during December with Oxford’s Templar Retail Park bought by Federated Hermes for GBP45 million at 7.25 per cent initial yield.

The alternative/mixed-use and leisure segments attracted a combined GBP900 million in December, a third below the 2020 monthly average of GBP1.4 billion. The annual total of GBP17.2 billion is around 25 per cent below both the 2019 figure and the five-year average. Nonetheless, the sector accounted for roughly 40 per cent of all activity by value in 2020.

Oliver Kolodseike, Deputy UK Chief Economist at Colliers International, adds: “Last year’s market was characterised by uncertainty, lockdowns and government stimulus and this is unlikely to change in the first quarter of 2021. However, businesses have generally adapted well to lockdown measures and the roll-out of different vaccines and ongoing government support (such as the extension of the furlough scheme and new business grants) will help the economy to rebound strongly in Q2 21.”

Source: Property Funds World