Overview

• Quarterly investment volumes reached £16.3bn: the highest since Q4 2013 and above
the five year average of £9.4bn
• Investment is expected to break the £50bn mark by year end for the first time since 2007
• Not seen since Q1 2011, regional transaction volumes outstripped those in London
• The all property transactional yield moved out very slightly to 6.13%, but, on an annualised basis, it is at a six year low
• Hotel investment levels reached £1.6bn in Q3: a cyclical high

After a slight slowing in the first half of 2014, the third quarter has seen an acceleration in investor activity: quarterly investment levels increased by 37%, and, on an annualised basis, investment volumes are the highest they have been since Q4 2007.

There has been an almost even split in activity between London, the regional markets and portfolio sales. Indeed, for the first time since Q1 2011, more investor cash was spent on regional properties than on London real estate: £5.95bn vs. £5.80bn. It should also be noted that of the £4.5bn invested in portfolios this quarter, the vast majority was for regional property, which paints an even rosier picture regarding demand outside the capital.

The all property transactional yield has moved out slightly, by 7 b.p., this quarter, but on an annualised basis it continues to move inwards and the lowest we have recorded since Q3 2008. This demonstrates continued high levels of competition among investors for UK real estate, which looks to be set for a record year in terms of returns and investment volumes.

Outlook

Strong economic growth has combined with high levels of investor-demand for real estate and an improving occupier market to boost market activity towards pre-recession levels. Total returns for 2014 will be in the high teens, so for those who have been able to access the right type of stock in the right markets at the right price, 2014 will be a ‘good year’.

However, yields are below average in most sectors of the market and this, coupled with uncertainties surrounding the forthcoming General Election, an interest rate rise and recent worries over the performance of some Eurozone and global economies, mean the rate of increase in capital values will slow significantly in the next 12 months. There is still scope for further increases, but these will be mainly driven by rental growth rather than further inward yield shift.

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