North East witnesses strongest investment volume since economic downturn

A healthy investment volume of £257.1m across the North East in Q4 propelled the total for 2018 to £851.8m, the strongest year since the economic downturn according to Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report.

While Q4’s impressive volume was up some 51% on Q3’s total of £169.8m, the North East market was characterised by consistently strong quarterly volumes throughout the whole of 2018, pushing the total up 144% on the 2017 figure of £349.3m.

Q4’s healthy volume was largely underpinned by a flurry of major transactions, including:

• Tritax Big Box REIT’s forward funding of a 1.99m sq ft pre-let at Citrus Group’s Integra 61 scheme in Durham, for £147m
• LSH’s £38m sale of a Travelodge and forward funding of a new Innside Hotel on Newcastle Quayside on behalf of Union Property Services
• Praxis Asset Management’s purchase of Blaydon Shopping Centre near Newcastle for £30m.

Despite a modest increase in the number of deals in Q4, up 13% on Q3, the average deal size rocketed from £9.4m to £13.5m, driven by a number of high profile transactions and the growth of institutional demand, which typically targets larger lots.

Following a momentary reversal in Q3, the polarisation of fortunes between office and industrial has become entrenched.  Despite value being ever harder to find, unwavering demand for industrial and logistics continues unabated.

The sector saw an investment volume of £151.7m in Q4, taking the 2018 total to a record high of £312.9m. On the flipside, Q4’s office volume of £9m was its third lowest in almost five years.

As a likely result of the ongoing uncertainty over the UK’s future relationship with the EU, overseas investors were noticeably absent from the North East’s commercial property investment market during the final quarter of 2018. UK Quoted Property Companies dominated activity, accounting for 58% of total volume.

Luke Symonds, Head of Capital Markets for Yorkshire and the North East at LSH, commented:

“2018’s performance shows that despite on-going political and economic uncertainty, the North East is a very resilient market. It is telling that UK buyers rather than overseas investors have driven volume, where sterling weakness could be seen by many as a buying opportunity for foreign wealth.

“Looking ahead, we expect subdued activity in the next quarter as investors wait for clarity on the nature of our exit from the EU. However, volumes are likely to bounce back later in the year.”

Ezra Nahome, CEO of Lambert Smith Hampton, commented:

“Viewed in the current context, Q4’s healthy volume is a timely reminder of just how resilient UK real estate is proving to be in spite of all the political toing and froing.

“That said, the wider market is likely to be relatively subdued in Q1 as domestic and smaller lot-size investors opt to sit on their hands and await greater clarity on the timing and manner of the UK’s exit from the EU. I am nonetheless upbeat about 2019, with volumes bouncing back in the second half of the year.

“We are largely ruling out the prospect of further yield compression in 2019, meaning investors will be especially focused on strategies aimed at maximising income and capital growth.

“Amid all this uncertainty, one thing we can be sure of is that the weight of money targeting secure income will be unwavering in 2019. This will drive continuing demand in alternatives, most notably PRS where a multitude of investors are allocating capital.

“Whilst retail has endured a torrid year in 2018, quality retail units in proven locations are now offering relative value, particularly set against industrial, and are likely to attract yield-seeking investors over the coming year.”