Investment in UK commercial property totalled £20.5 billion in the final quarter of 2014, research from Lambert Smith Hampton (LSH) reveals. This represents a 26 per cent increase on the previous quarter and the highest quarterly performance ever recorded.
The final quarter volume pushes investment for 2014 as a whole to £59.6 billion, 18 per cent higher than 2013, and the second highest annual performance since the £61.7 billion recorded in 2006.
The central London office market was a ‘key driver’ in the final quarter activity with investment volumes over twice the level of those from the previous quarter. However, LSH’s UK Investment Transactions Report shows a 41 per cent increase in investment in the regional markets, with the figure for 2014 as a whole standing at over £21 billion – the second highest volume on record.
LSH points to the resurgence of UK institutional investors and the improving economic picture as the factors driving the inflow of investment into the regions. Despite the rise in domestic investment, overseas buyers continue to dominate the market. Investment from the US more than doubled in 2014 and there was a significant year on year increase in investment from the Far East.
Commenting on the findings of the research Ezra Nahome, CEO of LSH, said: “The commercial property investment market enjoyed a stellar year in 2014, and activity was within a whisker of breaking the record that was set at the height of the last boom in 2006.
“Transaction volumes are now roughly double what they were as recently as 2012, which reflects investor appetite for commercial property in both London and the regions.”
For those worrying where these levels of investment might lead, Nahome says there is an important difference between current market activity and that of the last boom – today’s investors are less reliant on debt finance.
Consequently, LSH forecasts that volumes will return to ‘trend levels’ in 2015. In addition, uncertainty ahead of the General Election could also serve to moderate market activity. Nevertheless, Nahome expects growth in healthcare, student accommodation and the private rented sector this year.
Returns are also forecast to moderate. Last year they reached 20 per cent, but somewhere around the 10-12 per cent mark is expected in 2015. Values, on the other hand, will continue to rise for good quality secondary assets, particularly outside London – albeit at a slower pace than of late.
