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UNITED KINGDOM INVESTORS: PRIMARY INVESTMENT FOCUS (NEXT 12 MONTHS)
OFFICE CBD 49 DEVELOPMENTS 42
% OPPORTUNISTIC 36 HIGH STREET RETAIL 29 HOTEL 19 DEBT 9
INDUSTRIAL AND LOGISTICS 44 RESIDENTIAL 38 SHOPPING CENTERS 30 THOSE TARGETING CENTRAL LONDON ASSETS MAY BE DISAPPOINTED
The ‘search for yield’ has driven many investors over the last 12 months to look beyond London to regional assets. The top three targets for investors are CBD offices (49%), industrial and logistics (44%) and developments (42%). This targeting has been accompanied by substantial yield compression throughout the UK. Competition for Central London product remains very keen, with sovereign wealth funds, especially new institutional entrants such as Asian insurers and pension funds and UK institutions bidding up prices considerably. Central London offices are trading at sub-5% in the City and sub-4% in the West End. Consequently, experienced UK investors are looking beyond London to achieve better returns.
The result has been regional yield compression due to sheer weight of capital, as a recent Manchester deal attests: Chancery Place sold to institutional investor NFU Mutual for £57 million, at a 5.1% initial yield. Likewise, an industrial asset changed hands at Magna Part in Lutterworth for £45 million at a 5.1% initial yield and a supermarket distribution warehouse in Milton Keynes traded at 4.75%. Yields have already fallen by up to 70 basis points (bps) in the UK across asset classes and, for several sectors, including regional offices and regional industrial, annual falls of over 100 bps are forecast by the end of 2014.
2015 GLOBAL INVESTMENT SENTIMENT REPORT
In addition to UK institutional buyers, private equity funds, particularly from the US, continued to be very active and to seek higher returns across a broad range of asset types. In August, a JV formed by US equity fund Oaktree and Patrizia Immobilien (Germany) for example bought three UK regional business parks for £430 million. In another recent transaction, US private equity firm Cerberus purchased a portfolio of 63 pubs, most of which located in Greater London and with residential redevelopment potential, for just over £185m. Many of these funds have also successfully increased their exposure to the UK real estate market through both debt purchase and through acquiring a share in the equity stack. In July, Cerberus won a portfolio of non-performing UK loans, dubbed Project Chestnut, from the National Australia Bank for around £485 million.
Given the substantial yield compression already experienced in 2014, it might be expected that the survey results would anticipate outward yield movement over the next 12 months. The sample shows a higher degree of stability than might be expected with 50% of respondents expecting no change and 16% expecting further yield falls, all the more remarkable because 75% of respondents expect to see rising interest rates and 48% expect
COLLIERS INTERNATIONAL OFFICE SUBURBAN 21 LAND 12 LEASEHOLDS 5
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