UK institutions searching for value drove UK investment volumes in the first half of 2018, particularly in the regional office market where they accounted for 35% of all transactions, the highest proportion since 2009, according to Savills.
The UK commercial investment market continues to perform well, with half year investment volumes standing at £26.9 billion, says Savills.
This is the fifth consecutive year of above-average H1 volumes, with H1 2018 being almost 32% higher- than the long-term average. In terms of the most active sectors, industrial and logistics accounted for £3.7 billion (14%) of H1 volumes, down on H2 2017 largely due to the lack of supply in the market, offices for £10.9 billion (41%), retail for £5.7bn (21%), with the rest split across various sectors including hotels and alternatives.
According to Savills, UK institutions with significant amounts of capital to deploy have begun to look at the regional office markets to make investments of significant value. In 2018 so far £2.5 billon has been invested into the regional office market with UK institutions accounting for £875 million (35%) of this volume, the highest level since 2009.
UK institutions are opting for regional offices due to competition in the industrial and logistics market, which is pushing up prices for already limited stock. Investors have therefore been driven to the office markets as regional occupier demand remains strong while development pipelines are constrained, thereby supporting rental growth; Realfor predicts five-year rental growth per annum of 2.1% in Birmingham, 2.6% in Cardiff, 2.4% in Manchester and 2.1% in Bristol.
Kevin Mofid, director in Savills commercial research team, says: “With large infrastructure projects set to lead to further growth in the regions, and more people seemingly moving out of the south east, occupancy rates in regional offices are likely to remain high. This, combined with the supply of vacant office space decreasing for the tenth year in a row, and 55% of the speculative construction pipeline is already pre-let, means that regional offices are unlikely to disappear from investors’ wish lists any time soon.”
James Gulliford, joint head of UK investment, Savills, adds: “The underlying fundamentals of the regional office markets remain robust, industrial and logistics assets are performing strongly, and the shopping sector market is set to be more active in H2, so we anticipate that 2018 will close out another strong year for commercial investment overall.”
Read Savills July 2018 Commercial Market in Minutes report online here.