- Political turbulence in 2019 resulted in a lack of investment stock with investors holding back sales in the run up to the Brexit deadline, a nervousness that then translated onto the lead up to the December Election. Stock levels in 2019 were also impacted by falling retail values with offices and industrial being held, offering defensive returns.
- Whilst this appeared to have resulted in reduced deal volumes for 2019 (YTD transactions at the end of Q3 2019 – £1.8 billion), a late surge of deals ensured a positive and encouraging outcome.
- There was also a marked improvement in both activity and sentiment following the General Election which bodes well for Q1 2020.
- This resulted in total transaction volumes for 2019 of £3.03 billion. This is ahead of the 2018 total of £2.77 billion and compares to £3.49 billion (5 Yr) and £2.56 billion (10 Yr).
- Q4 2019 deal volumes totalled £1.27 billion which reflects a huge 414% increase on Q3 2019 volumes at £247 million (excluding the £400 million Croxley Park and £138 million Lakeside North Portsmouth deals).
- CPPIB’s £250 million forward funding of Apple’s new Cambridge research base and Kennedy Wilson’s £136 million purchase of The Heights represent the largest deals for the quarter.
- Q4 2019 saw 48 deals in total with an average deal size of £27.0 million. This figure is ahead of the Q1 – Q3 2019 average of £15.6 million (excluding Croxley) and it compares to the 5-year average of £23.5 million.
- The trend for deals being offered off-market or on a selective basis continued through 2019 into Q4 2019. Deals continued to take longer – 52% of Q4 deals were either off-market or launched over 6 months prior.
- Funds represented 26% of all Q4 transactions (however this falls to 9% excluding Cambridge). Private Equity buyers returned to the market representing 17%. A good example of their return is the depth of demand for Reading International where there was c.£1 billion of capital chasing it.
- Overall 2019 was one of the most balanced on record in terms of activity with no investment group accounting for more than 20%.
- Opportunities with strong property fundamentals, alternative development and/or repositioning angles have continued to be targeted competitively by all investor groups in 2019.
- In 2019 a large number of lenders remained active in the South East Office Market and liquidity was available across most parts of the capital stack, either on assets with long term income in place or transitional assets with strong asset managers and business plans. The international Banks were more selective in this market in 2019 due to the underlying political uncertainty and tended to focus on trophy London assets, meaning the debt funds who were happy to underwrite sponsor’s business plans were able to do more business in this space.
- Post the General Election as we move into 2020, we are already experiencing strong interest from European and American lenders for assets of a transitional nature. A numbers of these lenders were not able to write significant business in 2019 and with the increased political certainty are now looking to be more aggressive lending against offices in the key markets of the south east.
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- A busy and improved market throughout the year with there already being significant deals closed to illustrate this.
- Asian investors are the vanguard of this trend with business parks being a major focus.
- The gap between the strongest and weakest centres is expected to widen.
