LSH: Unusually high investment activity in Q3

The total value of commercial property investment transactions across the North West increased by 158% in the three months ending 30 September, £306.5m compared to £118.87m in the second quarter, according to Lambert Smith Hampton.

LSH's UK Investment Transactions Q3 2011 report revealed that office deals rose 20% by value and accounted for 48% of the total compared to Q2, while the industrial sector saw a drop from the previous quarter. The retail and leisure sector continued to remain a sought-after asset class across the region, accounting for 39% of total activity.

LSH saw 69 North West deals in Q3, making an average lot size of £4.4m. The most significant deals to take place during Q3 included:

  • Sale by a private Irish investor of 150,000 sq ft of office and ground floor retail space at One Piccadilly Gardens, Manchester for £67m to Europa Capital Partners.
  • Scottish Widows' acquisition of 84,000 sq ft of office space at Barbirolli Square, Manchester for £30m from Hermes
  • ING Real Estate Investment Management UK acquisition on behalf of ICL Pension Trust of 110,256 sq ft B&Q in Crewe for £23.65m, reflecting a net initial yield of 6.258%

Of the total value of transactions, 32% of buyers were from overseas and 20% from UK private companies, while UK institutions – insurers, pension funds, investment trusts – committed £115.9m; a 38% market share.

Abid Jaffry, Northern head of capital markets at LSH in Manchester, said: "The investment market is still continuing to demonstrate an enthusiasm to acquire appropriate opportunities. There are signs that investors are moving up the risk curve but the precursor to the majority of buys is largely quality led with assets which do not deviate from core fundamentals. Purchasing activity is still punctuated by pauses which are caused by a reaction to financial data which can change performance parameters and drive sentiment but this may ultimately form the stimulus for much needed stock as the banks begin to manage their loan book liabilities."

Focusing on the UK as a whole, investors bucked market sentiment in Q3 by transacting £8.06bn, 22% more than the previous quarter, in what is typically the quietest quarter of the year.

Ezra Nahome, chief executive of LSH, explained: "Commercial property continues to provide attractive returns to investors in comparison to other asset classes and following the Bank of England's second round of quantitative easing, which will support continued low finance costs and stimulate interest in the market, we could witness increased investment activity over the coming 12 months."

Nahome added: "The number of deals completed in Q3 in the regions was half the amount completed in Q2. Yet closer examination shows that the volume of money invested remained the same quarter on quarter, clearly demonstrating that investors are focused on quality over quantity in the regions. This activity has led to the Rest of UK Offices recording a 119 basis point inward shift.

"The underlying concerns over the stability of the UK economy could lead to a slowdown in traditional sales activity in Q4, but we do expect an increase in portfolio and debt sales as banks further downsize their loan books."

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