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Cushman: UK transactional activity close to £56bn in 2018

While the full year investment total represented an 18% reduction on 2017 and the quarterly total of £12.8bn was down 43% on a year ago, reductions were expected with activity coming off recent highs. Both annual and quarterly trading was still above long run averages of £42bn and £10.5bn respectively.

UK Investment Activity (Rolling Annual)

Source: Real Capital Analytics, Cushman & Wakefield

Cushman & Wakefield research revealed that activity was weaker in most sectors with the exception of hotels and residential which were broadly stable on the back of continued demand. Logistics activity dropped the most – by 40% to £7.9bn, albeit 2017 volumes were supported by a number of large portfolio sales and platform transactions.

Growth in e-commerce, profit warnings, administrations and store closures contributed to a weaker retail performance. Retail annual returns on the MSCI monthly index turned negative over the year (-0.1%) making retail the worst performing asset class in 2018. Retail investment was 23% lower over the year driven by a 27% fall in retail parks. Shopping centres posted a rise, although excluding entity sales, trading was close to 50% lower at less than £1bn.

Prices are beginning to stabilise, or even fall in some cases, Cushman reported. Retail was the only sector to see yields rise from 6.0% to 6.15% over the year. In all other sectors yields, continued to compress, albeit at a weaker pace, with the greatest decrease in industrial where the equivalent yield fell 47bps in 2018 to 5.32%.

Trading across Central London in 2018 was just 4% lower year-on-year at £20.6bn with activity in the City marginally higher than in 2017 (+1%) across the period at £10.8bn.

Outside London activity fell 25%, partly due to fewer portfolio sales over the year. Overall, the gap between prime and secondary yields narrowed over the quarter, although continued political uncertainty will potentially see the gap stabilise and possibly widen into 2019.

Dr Nigel Almond, Cushman & Wakefield’s Head of Data Analytics – EMEA Research, explained: “The ongoing uncertainty surrounding the UK’s exit from the EU is causing caution among some investors either seeking to sell or acquire assets. Baseline predictions suggest weak or negligible growth for several quarters in the event of a no-deal Brexit but the wide variation in forecasts underlines the uncertainty in the market.

“With a gap emerging between buyer and seller expectations on pricing amid continued uncertainty, deals are taking longer to close, with many investors unwilling to sell at lower prices or holding off from bringing assets to the market, despite there being active demand. Pricing is expected to stabilise with softening in some segments, as activity is expected to remain weak in the first half of this year although we could see a positive upswing if greater clarity emerges on Brexit.”