CoStar Investment Review: A rollercoaster year ends on a high

By Mark Stansfield - Wednesday, February 08, 2017 14:28

Investment into UK commercial property recovered strongly in Q4, to £16bn, following a very weak Q3, according to CoStar’s latest investment data.

This brought the 2016 annual total up to £48.9bn. Although down 27% from 2015’s £67.4bn and the weakest year since 2012, it was a respectable number, given heady pricing and the levels of uncertainty experienced during the year, and 10% above the 10-year average.

Click here to view a video interview with leading figures in the industry discussing the year past and the year to come including: Chris Perkins, head of business space, M&G Real Estate, Chris Ireland, UK chief executive, JLL, Colin Wilson, head of UK and Ireland, Cushman & Wakefield, James Thornton, chief executive, Mayfair Capital, Ross Blair, senior managing director and country head of UK, Hines, Peter Cosmetatos, CEO, CREFC Europe, Mark Girling, head of capital markets, Montagu Evans, Nick Braybrook, head of City capital markets, Knight Frank, Duncan Walker, investment director, Helical, Toby Askin, Partner, DWF, David Harper, CEO and founder Harper Dennis Hobbs.

Indeed, investors remained as busy as ever in terms of deals done. Perhaps surprisingly, the number of transactions was broadly similar to the year before at 4,100. And the 1,235 deals in Q4 2016 was slightly ahead of that in Q4 2015, suggesting momentum going into 2017 and plenty of activity at the smaller end.

London suffered disproportionately in 2016 in terms of volume. Investment fell 29%, compared to a 12% drop for the rest of the UK. And despite a bounce back in Q4 - fuelled by a flurry of new entrants from China and Hong Kong - Central London office investment slumped to a five-year low of £13.1bn. Prices also softened slightly, albeit from very high levels, as evidenced in CoStar’s newly-launched repeat sale indices, which feature in this report.

Outside of London, three trends stood out in 2016.

One was the big drop in multi-region portfolio trades, which were a big driver of volumes in the previous two years.

Another was the huge increase in demand from local authorities. Indeed, encouraged by central government cuts and low borrowing rates, local authorities spent more than £1.5bn in 2016 - considerably more than in the previous six years combined.

The third key trend was the rising popularity of the industrial sector. Pinpointed by many as the sector best placed to cope with any Brexit-related headwinds, industrial investment as a share of the total reached a seven-year high of 12%, helped by a particularly strong Q4. 

So how will UK commercial property fare in 2017? Will investors continue their recent trend of de-risking or feel confident enough to move up the risk curve again? Will prices stabilise or come under further pressure? Will global capital continue to flood into London? Whatever your views, expect more twists and turns: 2017 is set to be another interesting year.

For more information and analysis on these themes, including the launch of two brand-new features – the aforementioned repeat sale indices, which measures price movement at a regional level by looking at instances where the same property has sold twice, and our CoStar 50 Occupier and Investment Activity Index, which provides investors with insight as to the most dynamic cities in which to invest, please log in to CoStar to access our 2016 UK Commercial Property Investment Review. If you are not yet a client, please email sales@costar.co.uk.

mstansfield@costar.co.uk

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