Non domestic buyers moving up the risk curve in UK

By Paul Norman - Monday, March 12, 2018 7:00

More Far Eastern investors in the UK regional commercial property market than ever before pushed total spend by non-domestic buyers outside of London in 2017 to £5.4bn, 54% ahead of the 10-year average, according to Savills

Savills said Far Eastern investors accounted for 30% of all overseas investment, acquiring a record £1.6bn in 2017 outside of London, to almost double their activity in 2016 (£867m).

Key deals including Fraser Property’s acquisition of a £686m business park portfolio* and a private South Korean investor spending £95.5m on 10 Canons Way in Bristol – a Grade A office building totaling 176,611 sq ft let in its entirety to Scottish Widows – highlight the focus on prime assets with long-term security. Savills said overall overseas investors accounted for 49% of all £100m plus deals. Comparatively UK institutions held a 24% market share of £100m plus deals, and UK Prop Co’s accounted for 13%.

Richard Merryweather, joint head of UK investment at Savills, said: “The UK’s regional cities look affordable in comparison to tier one cities in mainland Europe which is attracting strong overseas interest, and increasingly cross-border investors from the Far East who are now venturing out of London in search of higher yields. What our figures illustrate is the focus by these investors on the best buildings, in the best locations with the best tenants.

“Outside of this sphere of interest UK buyers have remained the most prevalent investor but we anticipate in 2018 we will see more non-domestic investors diversify away from secure-let, core buildings. Some will move up the risk curve while others will explore sectors once classed as ‘alternative’ that today offer attractive income returns compared to many mainstream investment markets.”

Savills suggests the top picks for 2018 include:

• Edge of core and future core offices, tech and media friendly refurbs and secondary offices that can be converted into prime.

• Urban logistics for e-commerce

• Experience and convenience retail, alongside retail warehousing

• The not so alternative ‘alternatives’ – senior housing, PRS, self-storage, student housing, serviced offices, healthcare and data centres.

According to Savills research, by comparison to Far Eastern investors, activity in 2017 amongst European and Middle Eastern buyers remained in line with their respective five year averages, accounting for £772m and £672m respectively, while US investors transacted £964m, slightly up on 2016’s performance but under half the volume seen in 2015 (£2bn). In total £23.6bn was spent on commercial real estate outside of London in 2017, with overseas investors having a 23% market share.

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