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News Release

London

Q2 2011 UK Direct Commercial Real Estate Investment Volumes down 11% year-on-year, up 12% for H1 2011

Lack of larger deals, tight supply and limited regional activity impacts on investment volumes according to Jones Lang LaSalle


London, 18th July 2011 – Direct commercial real estate investment in the UK totalled £6.6 billion in the second quarter of 2011 (Q2 2011), a 24 percent decrease compared with the first three months of the year and a 11 percent decrease on levels achieved in Q2 2010. Limited supply of prime product and a widening disconnect between Central London and the rest of the UK continued to have a significant impact on investor activity, according to Jones Lang LaSalle.

Whilst a cautiously optimistic start to the year saw £8.7 billion of UK real estate transacted in the first quarter, this was a front loaded performance and the figure was spiked by the £1.6billion sale of the Trafford Centre sale in Manchester.
The UK real estate market has undergone further polarisation between the London and regional markets. Robert Stassen, Head of EMEA Capital Markets Research, commented: “The dynamics of the Central London investment market remain unique compared to the rest of the UK.  Investor activity in the capital in Q2 2011 amounted to almost 58 percent of the UK’s total volumes and is heavily skewed towards the office market; almost 69 percent of all transactions in this sector in Q2 were in Central London.” 

Jones Lang LaSalle highlights that the continuing popularity of prime London assets with investors, particularly those from outside of the UK, has engendered a shortage of suitable product.  Whilst the City and West End office markets have experienced good momentum this year, both have been characterised by an extremely tight supply of prime assets and this is expected to continue through to year end.

Robert Stassen added: “Restricted supply is not just constrained to offices and indeed regionally we are seeing a lack of product across all commercial property sectors. There is demand from sovereign wealth funds for super-prime shopping centres, yet no suitable product has come onto the market.  Prime industrial assets in the South East have also experienced competitive bidding, with lots achieving prices in excess of the asking price.”

Despite the constraints on suitable prime investment grade product, investors appear reluctant to explore opportunities within the secondary market. Chris Ireland, UK Board member, Capital Markets at Jones Lang LaSalle, continued: “Retail transactions amounted to almost 46 percent of activity outside of Central London, but have been focused on city centre and prime town centre locations. Investors are looking for quality assets with strong trading fundamentals or, alternatively, an asset management or development angle to exploit. The exception to this can be seen within the industrial investment market where demand for some secondary assets within the South Eastern market is now trending stronger.”

The UK remained the most liquid real estate investment market in the EMEA region, yet its market share has eroded marginally over the past six months, falling to 30 percent in Q2 2011 from 37 percent in Q2 2010 (35 percent for H1 2011).  The evident recovery in other markets, notably Germany, Nordics and Russia, has pushed down the UK’s overall market share as its activity slowed into 2011.