Investment almost tops £2bn as region marks ‘strong ‘ year

Lambert Smith Hampton’s latest UK Investment Transactions (UKIT) report found that a healthy investment volume of £407.3m in the final quarter of the year propelled the total to £1.9bn.

While the volume for the last three months of the year (Q4) was down some 27 per cent on the third quarter’s total of £557.3m, the Yorkshire market saw consistently strong quarterly volumes in 2018, pushing the total up 44 per cent on the 2017 figure of £1.3bn.

Q4 was largely underpinned by a flurry of major transactions, including: Cassidy Group’s purchase of the Pennine Centre in Sheffield, a development site with planning for 658 student beds and 247 residential units, for £84m; Aberdeen Standard Investments disposal of a 415,000 sq ft distribution warehouse at First Point Logistics Park in Doncaster for £38m; and Aviva Investors’ purchase of 1 City Square, in Leeds city centre, for £32m.

Despite the significant increase in the number of deals in Q4, up some 34 per cent on Q3, the average deal size fell from £15m to just £9.9m, reflecting investors’ cautious approach towards the looming Brexit deadline. This hesitancy is expected to deepen in Q1 before recovering later in the year.

The polarisation of fortunes between retail 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 £135.6m in Q4, taking the 2018 total to a four year high of £444.4m. Q4’s largest industrial deal was Surrey County Council’s £43m purchase (4.85% NIY) of a distribution warehouse on Park Spring Road in Grimethorpe from Credit Suisse. On the flipside, Q4’s retail volume of £66.5m was at its lowest in 15 months.

Despite the ongoing uncertainty over the UK’s future relationship with the EU, overseas investors continue to show faith in the core fundamentals of the region’s real estate, accounting for 21 per cent of total volume.

Luke Symonds, head of capital markets for Yorkshire and the North East at LSH, said: “2018’s performance shows that despite on-going political and economic uncertainty, Yorkshire 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, chief executive of Lambert Smith Hampton, added: “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.”