Despite the ongoing challenges in the economic and political environment, the Q2 2019 south east investment volumes were 107% greater than the previous quarter, totalling 614 million, across 40 transactions. Whilst this represents a healthy increase from Q1, volumes remain subdued in the context of the Q2 five-year average of 1 billion.
Q2 continued to see very limited new stock coming to the market. The majority of these deals are the result of frustrated investors reassessing historic opportunities. Indeed, of the 614 million of transactions in Q2, 57% were assets launched during 2018. Stock levels have also been impacted by falling retail values with offices and industrial generally being held, offering defensive returns.
Sales are taking longer to execute and there remains a disparity between vendor and buyer on pricing . New entrants particularly overseas parties have been making their mark but cautiously. Given the macro-economic conditions investors continue however to be increasingly selective and polarised in terms of what they wish to invest in, particularly in relation to location.
There is a growing trend for vendors to seek to trade off-market. Discretion and the possibility of premium pricing are motivating this.
Local Authorities, having been the most active investor type during Q1 2019 and throughout 2018, have significantly reduced their investment activity with the May elections delaying decisions, along with an increased In Borough focus.
The quarter has conversely seen a return of property companies who represented the most active investor for Q2 2019 ( 295 million transacted representing 49% of total transaction volumes). Private investors and private equity each represented 13% of market transactions.
The average lot size for Q2 2019 was low at only 15.7 million versus the 5-year average of 22 million. The largest transactions were Colworth Park, Ditton Park and the GlaxoSmithKline Stockley Park deal. The latter demonstrates the continued interest in office assets for alternative uses. The largest single asset transaction during Q2 2019 was 1 Eton Street, Richmond, at 34.5 million.
Prime yields currently stand at 5.25% NIY. There are several notable examples where buyers have paid premiums to secure the very best product (e.g. Brighton). Pricing for secondary assets (unless strong locations) are bearing the brunt of liquidity.
A slowing in activity over the summer with a significant pick up in Q4.
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