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Investment Market Report: July 2019

Investment Agency

The volume of investment sales between January and May 2019 stands at circa £15 billion, down 30% from the same period in 2018.  The leisure and alternative sectors made up over 40% of activity, while volumes in the retail sector continue to decline.  The UK is selecting its third Prime Minister in four years and the possibility of both a general election and a no deal Brexit weigh on market sentiment.  Therefore it is difficult to envisage 2019 investment volumes reaching the five year average of £63 billion.

Office investment volumes so far in 2019 are circa £4.6 billion compared to the £7.2 billion transacted over the same period a year ago and the weakest level since 2008.  Despite attractive currency exchange rates, overseas investors have taken a more cautious approach, accounting for only 38% of all office investment in Central London, down from 72% in 2018.  Overseas investors and UK institutions are reducing their exposure to the sector and are a net seller of office assets so far in 2019.

Sentiment in the retail sector remains very negative and consumer confidence is fragile.  Retail investment volumes stand at £1.8 billion so far this year, down from the £2.3 billion during the same period last year.  With more administrations and CVAs expected, there will be further downward pressure on rents.  Shopping centres are trading particularly poorly and only seven shopping centre deals have been reported so far in 2019, some with yields of circa 10%.  Activity is likely to remain subdued in the short to medium term amid continued uncertainty.

Industrial has been the strongest performing sector so far in 2019 with a 6.9% year on year total return.  Demand for prime single and multi-let industrial assets is very strong with competitive bidding situations leading to prices in excess of quoting terms being achieved.

Investors are approaching the secondary end of the market with a greater degree of scepticism.  Demand is strongest for long and secure income streams, with a focus on assets providing longer term income and opportunity that can withstand Brexit concerns.  Assets with redevelopment and repositioning opportunities are attracting investors attempting to see opportunity in uncertainty.

All regions bar London posted below average volumes.  Investors continue to move away from the three main sectors (office, retail, industrial) unless offering attractive added value opportunities towards the secure long-dated income offered by alternatives, with hotels and build-to-rent opportunities proving popular.

For the latest investment advice, contact John Benson who leads our investment agency team on 0117 317 1100.

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