Cushman Q1 UK review: central London volumes resilient amid sharp drop off in capital flows from outside Europe

Central London maintained its resilience in the first quarter, with trading for all asset types marginally higher over the quarter, with annual trading 8% higher year-on-year at £23bn, according to new data from Cushman & Wakefield.

A total of £11.2bn of commercial real estate was traded in the first quarter of the year in the UK, some 20% lower on the same period a year ago. A lack of stock twinned with Brexit-related caution saw activity in the mainstream sectors – office, retail and industrial – weaken 39%.

The general deceleration in activity comes as evidence from our Cushman’s Liquidity Tracker points towards a slowdown in the volume of new assets coming to the market over the course of the first quarter, with deals also taking longer to complete.

Investor appetite from overseas buyers has also been impacted with a sharper drop off in the flow of capital from outside of Europe, according to Cushman, and domestic activity also slowed.

In contrast, an uptick in investment from European cross border sources was observed, notably, Belgian, French and German sources. Over two-thirds of this activity centred on alternative assets – hotels, residential and care homes. With prime yields on the continent now lower than the UK, UK assets are demonstrating relative value for those backing the UK’s long-term fundamentals.

In a further sign of calm, figures from the Investors Association showed a marginally positive inflow into funds in March, having been negative over the previous three months providing much needed stability for these funds. With the form of the UK’s exit from the EU still to be determined levels of trading are expected to remain weak over the course of the year as prospective buyers cast a detailed eye over transactions.

Whilst capital remains in the wings, greater due diligence and a lack of product is likely to stifle activity, with the focus expected to centre on better quality assets in core sectors and continued appetite for alternatives. Should we see greater clarity on the UK’s position relative to the EU emerge, we could see the release of pent-up demand and an uptick in activity.

Nigel Almond, Head of Data Analytics – EMEA Research at Cushman & Wakefield, explained:

“With the form of the UK’s exit from the EU still to be determined, levels of trading are expected to remain weak over the course of the year as prospective buyers cast a detailed eye over transactions. Whilst capital remains in the wings, greater due diligence and a lack of product is likely to stifle activity, with the focus expected to centre on better quality assets in core sectors and continued appetite for alternatives. Should we see greater clarity on the UK’s position relative to the EU emerge, we could see the release of pent-up demand and an uptick in activity.”

james.wallace@realassetmedia.com