News

Institutions roll back the decades

News

Julia Cahill

05 March 2005

Property’s popularity with funds hits highest point since the 1970s with £2.3bn of deals in 2004

Institutional investors put more money into commercial property last year than any year since the 1970s.

Their net investment totalled more than £1bn in the final quarter, according to a new report by Lambert Smith Hampton and research company Property Data. This reflects the news from IPD that there has been a major shift by institutions into property (see p52).

Net investment by institutions for the year reached £2.3bn — a swing of almost £5bn from 2003, when net disinvestment by institutions exceeded £2.5bn.

This is the first time since the 1970s that institutions have shown so much commitment to property, the report says.

LSH head of national investment Ezra Nahome explained: “The combination of gearing and private equity promoted through fund management vehicles has proved to be an exciting one, generating positive cash returns and opportunities for capital growth not seen before in the commercial property investment market.”

But he added: “Mainstream institutions are having to be more creative with their existing portfolios by creating geared vehicles in order to generate better returns.”

A total of £14bn was spent on commercial property in the last three months of 2004 – the highest quarterly figure ever recorded in the UK.

Quoted property firms showed the most dramatic turnaround: a £3bn disinvestment as they finished cleansing their portfolios in the first half led to a £760m net investment in the second half of 2004.

Prospects in 2005

With supply looking thin, investors are having to find new sources of stock. Lambert Smith Hampton’s national investment head, Ezra Nahome, said the winding down of five-year limited partnerships – many of which were formed between 1999 and 2001 – could offer opportunities. Some may decide to take their profit now, as HSBC did when it sold off its Charterhouse shopping centre funds I and II to CIT in 2003. He also named corporate sale and leasebacks as a potential source of supply.

Growth across UK

Investment increased by 43%, from £29bn in 2003 to £42bn in 2004.

The biggest increase in activity was in the North East, where investment rose by 250% on 2003 to £762m. Deals included Premier Property Group’s £98m purchase of Middleton Grange shopping centre, Hartlepool, from GE Real Estate; and UK Land Estates’ industrial joint venture with One North East, involving a £120m portfolio.

The next-biggest growth came in Scotland, where investment levels reached £3bn, a 137% rise on 2003.

In the South West, investment leapt by 58%, with total transactions of £1.3bn.

Greater London saw a 50% increase, with £12.5bn of activity recorded. Institutions sold £161m, but began to buy back into the London market in the final quarter.

In the West Midlands, transactions hit £2bn, up 35%. Institutions bought £888m of property.

The East saw 24% growth; Yorkshire and Humberside 23%; the North West 18%; the East Midlands 17%; Wales 14% and the South East 11%.

Northern Ireland saw the only fall. Investment fell back from £454m in 2003 to £111m in 2004 as Irish investors focused on mainland UK.

Property’s popularity with funds hits highest point since the 1970s with £2.3bn of deals in 2004 Institutional investors put more money into commercial property last year than any year since the 1970s. Their net investment totalled more than £1bn in the final quarter, according to a new report by Lambert Smith Hampton and research company Property Data. This reflects the news from IPD that there has been a major shift by institutions into property (see p52). Net investment by institutions for the year reached £2.3bn — a swing of almost £5bn from 2003, when net disinvestment by institutions exceeded £2.5bn. This is the first time since the 1970s that institutions have shown so much commitment to property, the report says. LSH head of national investment Ezra Nahome explained: “The combination of gearing and private equity promoted through fund management vehicles has proved to be an exciting one, generating positive cash returns and opportunities for capital growth not seen before in the commercial property investment market.” But he added: “Mainstream institutions are having to be more creative with their existing portfolios by creating geared vehicles in order to generate better returns.” A total of £14bn was spent on commercial property in the last three months of 2004 – the highest quarterly figure ever recorded in the UK. Quoted property firms showed the most dramatic turnaround: a £3bn disinvestment as they finished cleansing their portfolios in the first half led to a £760m net investment in the second half of 2004. Prospects in 2005 With supply looking thin, investors are having to find new sources of stock. Lambert Smith Hampton’s national investment head, Ezra Nahome, said the winding down of five-year limited partnerships – many of which were formed between 1999 and 2001 – could offer opportunities. Some may decide to take their profit now, as HSBC did when it sold off its Charterhouse shopping centre funds I and II to CIT in 2003. He also named corporate sale and leasebacks as a potential source of supply. Growth across UK Investment increased by 43%, from £29bn in 2003 to £42bn in 2004. The biggest increase in activity was in the North East, where investment rose by 250% on 2003 to £762m. Deals included Premier Property Group’s £98m purchase of Middleton Grange shopping centre, Hartlepool, from GE Real Estate; and UK Land Estates’ industrial joint venture with One North East, involving a £120m portfolio. The next-biggest growth came in Scotland, where investment levels reached £3bn, a 137% rise on 2003. In the South West, investment leapt by 58%, with total transactions of £1.3bn. Greater London saw a 50% increase, with £12.5bn of activity recorded. Institutions sold £161m, but began to buy back into the London market in the final quarter. In the West Midlands, transactions hit £2bn, up 35%. Institutions bought £888m of property. The East saw 24% growth; Yorkshire and Humberside 23%; the North West 18%; the East Midlands 17%; Wales 14% and the South East 11%. Northern Ireland saw the only fall. Investment fell back from £454m in 2003 to £111m in 2004 as Irish investors focused on mainland UK.