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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

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Overseas investors double share of property in Scotland since last financial crisis

The share of overseas investment in Scottish commercial property has doubled since the last financial crisis, according to Colliers International.

The real estate advisor said finance had flooded in to the country from Middle East and Asian investors seeking stable assets and from many in mainland Europe in search of value for money.

Colliers’ report, Regional Revolution III, Rise of Cross Border Investment, 2020, compared inflows to the market between 2002 to 2006 with the period from 2014 to 2018.

Overseas investors’ share of the Scottish market grew from 19% to 41%. Investment increased from less than £250 million in 2002 to £1.25 billion in 2016.

Oliver Kolodseike, an associate director with Colliers International, said: “Looking at what attracts overseas investors to Scotland, the country benefits from fairly competitive pricing, while still being a transparent and relatively stable market, compared to other parts of the UK and Europe.

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“It also enjoys strong occupational demand in the office sector, has an educated workforce, leading universities and low unemployment.”

Colliers reports that the sector in Scotland was attracting increased interest this year until the lockdown brought transactions to a near halt.

Investment in commercial property for the first quarter of 2020 was double that of the same period last year, the firm said. Last year, total investment topped the £2 billion mark for the sixth year running.

Between 2002-2006 and 2014-2018, Colliers found, Irish investors largely withdrew from the UK regional market while money increased from Asia, the Middle East and other parts of Europe.

Kolodseike said the fallout from the last financial crisis, plummeting oil prices between 2014 and 2016 and political uncertainty had contributed to a slump in the domestic share of investment.

He added: “A large part of Scotland’s tax revenues comes from oil and a falling oil price deepens Scotland’s fiscal deficit. The fall in oil prices and the independence referendum had a downward effect on overall investment volumes in Scotland.

“While these factors contributed to a degree of hesitation among domestic buyers, cross-border investors increased their exposure to the market. Loose global monetary policy, a weak sterling and competitive pricing, compared to other markets, also contributed to the attraction of foreign buyers.”

Last year, investment included the £27 million acquisition of Centrica’s HQ in Edinburgh by Dubai-based BLME/Darin Partners, the £55 million acquisition of the Sauchiehall Centre in Glasgow by 90 North and Saudi firm Arbah Capital, and the £22 million purchase of Technip HQ in Aberdeen by Black Sands of Bahrain.

Korea is also a major player. Unnamed investors bought the Leonardo Innovation Hub at Edinburgh’s Crewe Toll for £100 million, and Glasgow’s 110 St Vincent Street. Hyundai Asset Management acquired an NHS base at Gyle Square for £55 million, while Mirae Asset Global Investments bought Morgan Stanley’s new headquarters in Glasgow.

In May, one of Germany’s largest pension funds bought the Aberdeen Standard HQ at St Andrew Square, Edinburgh, for £120 million.

US investor Blackstone bought Eurocentral warehouses Colossus 1 and Colossus 2 for £16 million in February this year, while CBRE acquired the nearby BrewDog Hop Hub for £10 million last November.

Colliers predicts the commercial property market will recover from Covid-19 because large investors such as pension funds need long-term, secure income streams.

Patrick Ford, Glasgow-based director of national capital markets, said: “Overseas capital continues to dominate the Scottish investment market. We are aware of circa £250 million of offices that are currently under offer in Glasgow and Edinburgh to Far Eastern investors. First into the pandemic and first out may see Asia back in the market sooner than, for example, Europe.”

By Hamish Burns

Source: Insider