Investment in the UK commercial property sector totalled £20.5 billion in the final quarter of 2014, 26 per cent up on the previous quarter and the highest quarterly performance on record, according to a new report.
National commercial property consultancy Lambert Smith Hampton’s latest UK Investment Transactions bulletin, published on 29 January, showed that the strong performance in the fourth quarter drove investment for the year as a whole to £59.6 billion. This is the second highest annual total on record after the £61.7 billion posted in 2006 and is 18 per cent more than the volume of deals in 2013.
The demand for Central London offices was a key factor, with investment in this sector more than doubling from the previous quarter, but investment in the regions also increased, by 41 per cent, to £21.1billion for the year as a whole – the second highest figure on record. The South East remained the most invested in region (£5.3 billion in 2014) and experienced the greatest amount of growth year on year (£1.2 billion).
Overseas investors continue to be the largest buyers of UK commercial property, with investment from the US more than doubling year on year and interest from the Far East also increasing significantly.
Ezra Nahome, CEO of Lambert Smith Hampton, said: “The commercial property investment market enjoyed a stellar 2014, and activity was within a whisker of breaking the record that was set at the height of the last boom in 2006. Transaction volumes are now roughly double what they were as recently as 2012, which reflects investor appetite for commercial property in both London and the regions.”
He added: “Investors are now considerably less reliant on debt finance. As a result, our forecasts point to transaction volumes returning closer to trend levels in 2015. The uncertainties surrounding the forthcoming General Election may also serve to dampen activity.
“Against the general trend of a softening in investment volumes, expect the so-called ‘alternative sectors’ – such as healthcare, student accommodation and the private rented sector – to be major growth areas.
“Returns reached almost 20 per cent last year but will moderate to somewhere near to 10-12 per cent in 2015. Moving forward, the main driver of returns will be income generated by the continued rental growth prospects in the occupier markets.”
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