The outbreak of the pandemic and the subsequent lockdown proved to be a challenging time for the global economy, but nevertheless, investment activity within the UK commercial property market never ceased to the extent we had imagined it might. Naturally, property investors have started to exercise greater caution in this ever-changing market, so being able to present them with the most relevant opportunities that have long-term potential has become more important than ever.
Since the onset of lockdown, the UK market recorded its largest ever fall in property transactions, shrinking to £10.3bn from £22.9bn, however, the volume of transactions that the Allsop national investment team has worked on has surpassed £300m, and as a firm well over £600m, reflecting continuous interest from private UK as well as overseas investors, and a new raft of opportunities for sellers. Due to the drop in the value of the pound following the Brexit vote, the UK retains its appeal as an investment destination for foreign buyers from across the globe, including the Far East, Middle East and North American Investors.
Growing appetite for quality assets
COVID-19 has intensified buyer appetite for certain assets, as demonstrated by some of the large transactions the Allsop team has handled since March. These included the £40m acquisition of Twenty Chapel Street, a prime Liverpool office building purchased by an overseas investor. This asset was an attractive proposition due to the combination of its excellent location and quality of building, coupled with a low rent and capital value per square foot. Another high-value transaction Allsop executed during lockdown was the acquisition of a prime retail warehouse in affluent Oxford for £11.42m. At the time of purchase, the property was let to a strong-performing DIY operator for 18 years, providing visibility and reassurance. Finally, Allsop advised one of its clients on the acquisition of a Luton-based business park, which was subsequently acquired for £62m. Let to a strong tenant for a period of 10 years, it presented an attractive opportunity to weather the COVID-19 storm. The market for retail parks, which was far from buoyant prior to the outbreak of the pandemic, is now looking like a more attractive opportunity for investors as these retail units provide larger format stores and are able to accommodate the social distancing requirements of COVID-19 more easily while reducing the need for public transport thanks to their good on-site parking provisions.
The industrial/logistics sector is again benefitting from COVID-19 as ‘last-mile delivery’ has strengthened as more consumers have been forced to buy online instead of visiting shops. Investors are also on the lookout for redevelopment opportunities, specifically retail/office to residential conversions, as the shortage of housing in the UK shows no signs of subsiding. The market has also strengthened for long-dated assets secured to excellent covenants, such as the Government and supermarket operators. Allsop advised Courtenay Investments on the sale of an office investment in Tottenham, London which received over 200 enquiries and sold in just four days for £7m, reflecting a net initial yield of 4.75%. Another highly successful transaction involved the sale of a large food store in Crowborough, East Sussex which generated substantial interest and was ultimately sold for £6.6m, well above the asking price, thanks to its potential to generate long-term income in an uncertain time, with a net initial yield of 5.62%.
What’s on the investment horizon?
Despite the flurry of activity we have observed in the market over the past few months, sellers are starting to face new challenges. As investors become more risk-averse and focus on long-term gains, it has never been more important to position assets in the right way. This requires an in-depth understanding of the market and of the property in question, as well as a good insight into the investor’s needs and strategy.
We have been fortunate to transact in one of the most challenging periods the industry has ever faced, and our unique insight into the market and a strong database of 50,000 registered investors has enabled us to gain to valuable insights into what buyers want to buy now, what’s less appealing and why. Ever the optimists, we believe once the COVID situation subsides all sectors of the property industry will again become highly prized as investors look for higher income returns in comparison to the current low returns other investment classes provide. Transaction volumes may well again return to record levels next year once the worst of the pandemic subsides through better treatment and the introduction of a vaccine. But for now, it is important for sellers to implement a targeted approach with carefully crafted marketing messages, ensuring they hit their target audience from the get-go, and no opportunity is missed in this cautious market. Perhaps that’s why so many investors are buying now?