Saying that last year was ‘unusual’ is an understatement. However we did see a form of resilience in the commercial property market demonstrated by headline transactions such as the iQ student housing portfolio which sold to Blackstone Real Estate for £4.660 billion and the Q4 acquisition of 1&2 New Ludgate in the City by the Singaporean Sun Venture for £552 million. While appetite remained, it was somewhat subdued, however overseas investment into UK commercial real estate (CRE) accounted for a record half of market share, testament to the UK’s relative value and attractiveness, despite the dual impact of COVID-19 and ongoing Brexit uncertainty.
We have recently released a Foreign Investment Map for 2020, in which we highlight the capital flows into the UK from various countries across the world and various asset classes. Our key takeaways show there has been an influx of investors from Singapore, focusing heavily on London and the south east. German investors were particularly active and were the main buyers in three English regions; east of England, south west and the west Midlands. However it was the US investors who were the most acquisitive, spending a total of £9.3 billion in 2020. The above iQ portfolio led the way, but other notable purchases from Blackstone Real Estate include a JV to buy the Hansteen portfolio (£500 million), the Platform portfolio (£473 million) and the EPIC Industrial Portfolio (£335 million).
During the last year we have started to see more opportunities that appeal to US higher return investors. These investors, mainly private equity houses, raised significant capital in 2019 and 2020 which they need to deploy in assets and platforms, with EMEA and UK allocations to fill. In addition, US REITS and Triple Net Lease funds who have historically been less active in the UK have seen pricing on secure income assets like supermarkets now meet their investment and income return requirements.
In 2020, investment into UK CRE reached £48.6 billion: logistics and offices were the most in demand asset type, racking up more than £2 billion of investment each in December alone. The annual total for investment into offices was £13 billion, driven by large London deals including Sun Venture’s purchase of 1&2 New Ludgate and the Marylebone Portfolio for £401 million by Allianz Real Estate (German) in December. The industrial sector had a particularly active year, driven by the boom in e-commerce and investors seeking a sense of security on the back of a positive occupational story. Investment volumes reached £9.3 billion in 2020, a 21 per cent share of all CRE investment, up from 14 per cent in 2019 and the highest on record.
Activity from overseas investors was not limited to the south east, in Yorkshire and Humberside the main sellers were from the US, while the main buyers were Far Eastern, for the south west the US were again the main sellers but the most active acquisition group was Germany, in Scotland most disposals were carried out by Middle Eastern entities, while the US were the main buyers. The appetite from overseas buyers will be complemented this year by renewed domestic activity but will by no means diminish as the UK remains attractively priced and the second half of the year brings with it a hopeful return to normality.
About the Author
John Knowles, our Head of National Capital Markets has extensive knowledge and experience of real estate and finance projects across Europe and Asia. To get in touch, contact John.Knowles@colliers.com.