Real estate investment hit an eight-year low of £38bn in 2020, according to the latest UK Investment Transactions report from Lambert Smith Hampton – but a big boost during the final quarter of the year will have given dealmakers hope for what comes next.
Ezra Nahome, chief executive of Lambert Smith Hampton, said the coming year will now be defined by the “insatiable global appetite for yield” and limited core assets opportunities, both of which should aid strong pricing levels.
Fourth-quarter UK investment stood at £12.2bn, up by 50% on the previous three months and only 5% below the five-year quarterly average, LSH’s report showed. However, that surge failed to offset the dramatic drop in activity during the second quarter, when the UK’s first Covid-19 lockdown brought dealmaking to a halt.
Shed deals hit a record quarterly high of £3.4bn in the final three months of the year, driven by distribution warehouse transactions including Blackstone’s acquisitions of portfolio from Prologis and EPIC.
London office deals also helped the Q4 upturn, led by Sun Venture’s £552m acquisition of Landsec’s 1 & 2 New Ludgate, EC4.
Even the beleaguered retail sector staged a recovery as the year drew to an end, with Q4 deal flow of £1.7bn rising by three times from the low of Q2.
Geographically, seven of the 12 regions across the UK posted deal volume above their five-year quarterly averages, with the East of England performing best at 40% above average.
Nahome said: “Although the market’s recovery has been set back by another lockdown, this time around there is light at the end of the tunnel with the roll-out of mass vaccinations. By spring, once restrictions start to be lifted, we expect the return to a more normal way of life to kickstart a wave of consumer, business and investment demand in the second half of the year.”
He added: “But amid this global reset, investors will have to carefully navigate a cocktail of risk and opportunity. On the one hand, enduring low interest rates and a weak outlook for bond returns puts UK property into an extremely attractive light but, on the other, question marks remain over the direction of travel in the occupier markets, in terms of their recovery and accelerated structural change.”
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