The slow start to the year contrasts sharply with December 2018’s revised monthly investment volumes of £8.5bn, with the bumper final month of the year driven by major investors closing out deals before year end. By contrast, the anticipated circa £3bn (if achieved) is 42% lower year-on-year compared with January 2018’s £5.2bn, according to Colliers International data.
Retail investment stood at just £150m, making it one of the weakest months in a decade. The largest deals in January reported so far include:
- Davidson Kempner Capital’s £348m purchase of the Ei Property Portfolio, comprising 370 properties including public houses and other commercial property assets;
- M&G Secured PIF agreed to invest £203m to fund the development of a 620-bed hotel in Paddington; and
- LaSalle Investment Management bought a £120m mixed-scheme in Milburngate, comprising BTR flats, office space, retail and leisure units and a hotel.
In retail, consumer demand remains subdued and the Bank of England (BoE) commented in its latest agents’ summary of business conditions that “uncertainty related to Brexit and subdued housing market activity weighed on demand”. Latest ONS and KPMG data showed that retail sales improved in January, which should support GDP growth in Q1 2019.
“KPMG noted that a disruptive no deal Brexit could see January’s improved fortunes reversed. Consumer confidence is weak and there is a growing concern that business rates will squeeze retailers’ margins to unsustainable levels. Recent research from Altus Group found that around 8,000 properties in the West End are braced for major hikes to their rates bills in 2019. All retail rents have fallen 2.2% y/y in Q4 – the strongest decline since 2010, according to MSCI data.”
In offices, overseas capital accounted for around two-thirds of all investment volumes in January. The sector’s 2019 performance is set to be closely correlated to the nation’s immediate political and economic future, Colliers says. While uncertainty may be prolonged, the global real estate brokerage firm does not envisage any significant rental movements. Headline rents are stable, although net effective rents are still under modest downward pressure.
In the industrial and logistics sector, Colliers says further rental growth in 2019 is likely, although not to the extent seen in 2018, as some rents may be reaching a ceiling. Within the industrial tenant base, there are signs of some sector slowdown, notably in the manufacturing sector. Nonetheless, occupier demand remains strong.
Overall, Colliers International says its market view for the year is unchanged. “Without the Brexit uncertainty, another £50bn of transactions would seem very likely in 2019.”