Data held by Colliers UK suggests that even after September’s strong rebound to £4.5 billion (up by 29% against September 2019), around £5 billion in deals in October were in the works across the UK, including £2.5 billion ‘in legals’ in the City alone.
In September, Investment & Pensions Europe reported that there were also another £5 billion in new commercial real estate opportunities across the UK. Furthermore, UK property funds have begun re-opening. Columbia Threadneedle and St James Place reopened in September after the ‘material uncertainty clause’ was lifted from valuations, and Canada Life and Legal & General IM (the UK’s largest property fund) reopened in October.
In September, redemptions amounted to £83 million, compared with £9 million in August when most funds were closed. Despite another £300+ million outflow in October (Calastone), redemptions are not expected to reach March’s record high £1.9 billion (Investment Association), but re-openings are likely to mean more assets coming to market as funds seek to improve and maintain liquidity, although L&G is reported to be holding significant cash reserves already.Given international travel constraints, an obvious missing cog in UK investment might be an absence of cross-border investors. Nevertheless, there have been several Q3 completions of large office deals by cross border investors in Glasgow (Singapore), Edinburgh (South Korea), Bracknell (Singapore) and in Central London (US, Singapore, HK). This suggests that travel issues may not be a problem for international investors with strong local asset managers or local asset management capabilities.
This trend is also evident in Q4. In Q2 2020, the cross-border investor share of the UK market fell to 33%, the lowest since 2011. The share rose to 40% in Q3 and has reached 63% in the first month of Q4.The investment momentum that began building in September continued despite the Government’s 23 September directive to work at home, further tightening of travel restrictions and mid-October’s regional lockdowns.
The 31 October guidelines may have jolted sentiment again, but physical access to assets for inspection is unaffected. Lack of access proved to be a serious impediment early in the pandemic, especially for valuations, but is much less so now. The latest guidelines suggest that access will continue provided that COVID-19 precautions are taken. The momentum already evident may be sufficient to carry the market through to the year-end. While the latest COVID-19 spike and new Government measures may have dampened sentiment already weakened by Brexit and the US election, the level of activity by cross border investors suggests that their appetite for deals is undiminished.
The extraordinary low interest rates and search for yield has kept UK property in the limelight, partly in response to yield differentials, but also in response to large-scale long-income opportunities. In this context, concerns about the security of property rental streams are seen by many investors as a short-term issue in a long-term market. Consequently, positive UK economic and financial metrics suggest a reasonable end to an uncertain second half, save any new unforeseen systemic political, economic, social or environmental crisis. The latest deal trajectory suggests that UK investment will reach £40 billion by year end, or £45 billion with a fair wind, down by 15% against 2019.Download Full Report
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About the Author
Chief Economist, and Head of Research of Forecasting at Colliers International, Walter Boettcher has over 20 years UK and European property industry experience. Highly renowned for his publications on Brexit, Economic Outlook & Trends, and Property Cycles, Walter has redefined how research can be used to support agency and professional services business development.
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