November’s lockdown will have a negative impact on GDP figures predicts Colliers, as the second lockdown took hold and investment into real estate dipped to £2.8 billion, down from £3.5 billion in October.
In the year to date, roughly £35 billion was invested, down by 18 per cent from the same period in 2019. For the month of November, offices (£1 billion) and industrial (£830 million) assets accounted for the largest shares of activity by value. The largest deal of the month was the £250 million sale of 1 St James Square to Hong Kong-based Lifestyle International, followed by DEKA Immobilien’s purchase of the Clarges mixed-use development in Mayfair which traded for £177 million and comprises office, retail and residential space. Cross border capital made up 40 per cent of all investment, with property companies accounting for a further 33 per cent. With the exception of retail and leisure, yields are generally stable and mild compression is evident for supermarkets, prime office and industrial assets.
Oliver Kolodseike, Deputy UK Chief Economist at Colliers International, commented: “Despite the end of the second lockdown and Christmas being around the corner, consumer confidence still remains subdued and its return will be crucial to any sort of meaningful recovery in 2021. Retail sales continue to rise strongly and activity on the housing market has resumed, however this is against a backdrop of an unresolved Brexit, a resurgence in COVID-19 cases and increasing unemployment levels. The November lockdown didn’t have as much of a negative impact on retail and leisure businesses as we saw in the spring, and we remain hopeful that both the economy and the commercial property market will rebound strongly in 2021.”
The office sector attracted roughly £1 billion worth of capital in November, down from £1.5 billion in October. There was significant regional activity, with the £119 million sale of Manchester’s Powerhouse Portfolio to Pictet Alternative not only the largest regional deal this month, but also one of the largest regional deals this year. The three assets comprise 343,000 sq ft of office space and the sale price reflects an initial yield of 5.2 per cent. Other notable regional deals include M7 Real Estate’s purchase of Bridgewater Place in Leeds for £84.5 million (6.6 per cent initial yield) and KanAm Grundinvest Fonds’ acquisition of 3 Quartermile in Edinburgh for £45 million.
Industrial assets remained in high demand in November, with investment volumes rising from October’s £721 million to £830 million in November. The largest deal of the month was BlackRock UK Property’s purchase of a 463,000 sq ft distribution warehouse in Bedford, currently occupied by Sainsbury’s until 2030. The sale achieved a net initial yield of 3.5 per cent. The next largest deal by value was the sale of three distribution warehouses totalling 209,000 sq ft of space at Dnata City in Stanwell to Hines Pan-Euro Core Fund for £80.3 million.
Michael Kershaw, director in the National Capital Markets team at Colliers International, added: “In their search for defensive assets, domestic and international investors have sought industrial assets throughout the year. Looking ahead to 2021 we expect even higher investment volumes, with Q1 2021 to benefit from a large number of deals, particularly portfolios, that are agreed and will transact early next year. As a rule investor demand will continue to be ahead of available product to buy.”
Around £300 million was invested across the retail sector in November, roughly in line with the monthly average so far this year, but down from an average of £450 million per month in 2019 notes Colliers. Supermarkets accounted for the majority of investment volumes, led by Supermarket Income REIT’s purchase of a Tesco and an Aldi store at Beaumont Leys Shopping Centre in Leicester for £63.4 million at 6.4 per cent initial yield. LXi REIT was also active in the supermarket sector, purchasing a 13-asset food store portfolio (including two discount stores) for £61 million at 5.7 per cent initial yield.
The alternative/mixed-use sector attracted £660 million of capital in November, down from £832 million transacted in October. The largest such deal by value was the £177 million sale of Clarges Mayfair to DEKA Immobilien. Elsewhere, Peabody purchased a 42-acre site at Dagenham Dock, comprising plans to build 3,200 homes with 50 per cent affordable housing, a secondary school and 86,000 sq ft of commercial space. The agreed purchase price was £100 million. Activity remained limited in the leisure sector, although LaSalle bought a 15-storey 235-bed Premier Inn, including a restaurant and retail space, in Birmingham for £38 million.