REACT News – Buoyant Q2 for South East investment market

By July 2021 News

Volumes driven by bumper portfolio deal

What South East investment volumes hit £1.54bn in Q2

Why The statistics were driven in part through the £714m sale of Arlington to Brookfield

What next Assets with strong ESG credentials, life sciences and redevelopment opportunities are expected to be in the greatest demand

Investment volumes in the South East saw a significant jump in the second quarter with £1.54bn of deals transacted.

According to research undertaken by ACRE Capital Real Estate and shared exclusively with React News, activity eclipsed the first quarter of the year, when £626m of deals were undertaken, by almost two and a half times. It was also a dramatic increase on the mere £359m of deals in the second quarter of last year, shortly after the onset of Covid-19.

Splitting the Atom

The statistics were boosted by Brookfield’s £714m acquisition of Arlington’s Atom Portfolio – which included assets such as Hammersmith Embankment, Uxbridge Business Park, Gloucester Business Park and Arlington Square in Bracknell –  from TPG, although even discounting this deal, volumes still hit £818m. Excluding the Arlington deal volumes were however 25% below the Q2 five-year average of £1.1bn. The average deal size stood at £23.8m.

Oxford Science Park was included within the Atom Portfolio

The other largest deals to have taken place were Henley and Colmore Capital’s £101m acquisition of Bedfont Lakes from M&G, Global Net Lease’s £170m sale and leaseback acquisition of McLaren’s headquarters and Oval and Elliott Management Corporation’s £70m purchase of Ealing Cross. Cambridge was the most active market with three deals totalling £102m.

Institutional fund managers accounted for 72% of the sales in the region, with several having to sell in order to fund redemptions. Prime yields now stand at 5.75%, although secondary yields are adjudged by ACRE to be weakening.

Increased confidence

ACRE also observes that investor sentiment is increasing, with interest focused predominantly on out of town deals. Some £807m of stock is currently under offer.

Fran Debney, associate at ACRE said: “We expect further stock to come to the market and improved sentiment translating to increased investment volumes later this year corresponding with the loosening of national lockdown restrictions, the return of workers to the office, the easing of travel restrictions and further vaccine success.

“We expect increasing demand for high quality assets in established centres, assets with strong ESG credentials, ‘life science’ opportunities and assets offering attractive re-development or alternative use potential.”

James Leach, partner at ACRE, added: “New stock of any quality is in very short supply and the value of new stock launched in Q2 is one of the lowest on record. This is evident in the fact that 65% of Q2 2021 deals by value were opportunities launched prior to 2021 as investors continued to re-visit ‘historic’ opportunities.

“We have seen a widening of the pricing gap between the strongest and weakest locations as more ‘risky’ investments located in less established office centres fail to secure investors focus. However, pricing is beginning to stabilise for better quality investments and in some cases is trading better than quoted prices.

 

By David Hatcher
July 7, 2021 | South East Investment 

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