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News Release

London

Q1 2011 UK Direct Commercial Real Estate Investment Volumes increased 41% year-on-year

Cautious optimism returns to market according to Jones Lang LaSalle


London, 4th May 2011 – Direct commercial real estate investment in the UK reached £8 billion in the first quarter of 2011 (Q1 2011), a 41 percent increase on Q1 2010, as a mood of cautious optimism returned to the market, according to new research released today from Jones Lang LaSalle.  Although transactional activity was down 18 percent compared to the strong performance recorded in the last quarter of 2010, this was widely expected as the start of the calendar year is traditionally a quiet period, it was however 20 percent higher than Q1 2009.

The UK remained the largest investment market in Europe, the Middle East and Africa (EMEA), capturing 38 percent of the capital flows in the first three months of this year, compared with 35 percent in Q1 2010.  Transactions were particularly focused on the Central London office sector due to its ‘safe haven’ status and the strong occupational market fundamentals.

Damian Corbett, Head of UK Capital Markets at Jones Lang LaSalle, said: “Investor focus very much remains on Central London and the South East markets.  We are continuing to see huge demand from overseas investors for large prime assets with strong covenants, with particularly aggressive bidding on good income product within the City offices market.  The West End office market is now starved of quality stock, and pricing within this and the City office market is already above the long-term cap rate average.”

Whilst Jones Lang LaSalle anticipates investment volumes will grow by up to 30 percent this year across the EMEA region, transactional activity within the UK investment market could be restricted by a lack of product.  2011 projections for the UK alongside other core Western European markets are for sub-10 percent growth, which, whilst  erring on the side of caution, acknowledge that Central European (CEE) real estate markets will be the key drivers of volumes this year.

Robert Stassen, Head of EMEA Capital Markets Research at Jones Lang LaSalle, added:  “The guardedly upbeat sentiment in the wider UK economy has translated through to the real estate markets and whilst downside risks remain a concern, the end of the quarter saw a number of key economic indicators, such as employment growth and inflation, shift cautiously in a more positive direction.  Analysts remain bullish on Central London rents and the market for good quality shopping centres is active across the country, but there is concern for pricing on secondary and tertiary centres, and for rental growth in the regional markets.”

Regulation, liquidity and debt capacity continue to be three of the main concerns facing the UK, and wider European, real estate markets.  The yet to be determined impact of Basel III and Insolvency II could alter the behaviour of lenders and thus liquidity, whilst the banks are continuing to work through their refinancing agendas and will continue to do so until well into 2012.  However, for the remainder of 2011 Jones Lang LaSalle expects to see further demand from a range of investors seeking prime assets in this core stable market; volumes will be limited by tight supply as opposed to a weakening in sentiment.