Alternatives now the largest sector in UK commercial real estate investment market as investor activity evolves

rolling annual total to £58bn, according to Cushman & Wakefield data, which if the momentum trajectory continues would lead to an estimated £45 billion for 2019.

Institutions have decreased their investment activity. A slowing UK economy and a fast-approaching Brexit deadline has made those already heavily invested in the UK more

Cautious, explains Cushman. Meanwhile, private equity investors have been increasingly active as buyers and sellers. As buyers, they had a 28% share of all investment in the second quarter – their largest share since 2008.

According to Cushman, the main sources of foreign capital are changing. Greg Mansell, Head of UK Research & Insight at Cushman & Wakefield, explains:

“Top investors from the United States, China and Hong Kong have either been net sellers or absent from the market. In their absence, other investors have stepped up. Persistent buying by French investors over the last 12 months has launched the country back into the top 10 rankings for net investment into the UK since 2006.

“Investors from South Korea and Israel have also been buying in large volumes. Both countries are now top 20 net investors into the UK, displacing traditional European sources like the Netherlands.”

The top three deals this quarter were a third of all investment – the highest share

since 2013. Vinci, an infrastructure operator based in France, bought a major stake in Gatwick Airport, classified as an Alternative asset, for £2.9bn. They announced the deal in 2018 and completed it in May 2019, making it the largest deal in the quarter.

The second-largest deal was over £1bn for a London office bought by an owner-occupier.

This deal highlights the trend of large corporates preferring ownership to leasing large amounts of space on long leases. For many companies, buying may be a cheaper option over the long term since the IFRS 16 Leases accountancy standard became effective at the start of 2019. Lessees must now recognise leases as assets and liabilities on their balance sheet.

The third-largest deal was the sale of 12 supermarkets to Realty Income Corporation at a 5% net initial yield. The sale was part of British Land’s drive to have a “a smaller, refocused retail business”. Mansell added: “Long-income portfolios, such as this one, attract buyers looking for low-risk, long-term income. With further declines in government and corporate bond yields this quarter, demand for these portfolios should continue. The appetite for long income has also driven growth in ground rent and income strip deals. The largest of these deals last quarter was £206m of ground rents secured on over £1bn of London Hotels bought by Alpha Real Capital.”

Cushman’s analysis continues tomorrow.

james.wallace@realassetmedia.com