UK investment volumes fell back to £6.9 bn in Q1, following a very strong Q4 2012, when £10.2 bn was recorded. Compared to volumes in Q1 2012, activity is broadly stable, and we consider this to be a more accurate reflection of the underlying trend in investment activity.
Foreign investment into the UK market, and London in particular, was very strong in 2012, and this continued in Q1 with £3.0bn of investment driven by foreign purchasers. This represented a 43% share of activity, compared to a long-term average of around 35%.
Over the past year, the public sector has emerged as the by far the biggest net investor in UK property with £1.8 bn of net acquisitions. This reflects the increasing activity of sovereign wealth funds, which bought several large assets during 2012. These funds, from Asia Pacific, Europe and the Middle East, are focussed mainly on prime offices in core markets.
In Q1 prime yields were stable in nearly all markets. This stabilisation was in line with our expectations, and brought a welcome end to several successive quarters of outward yield movement in the regions.
With gilt yields falling and property yields stable, the prime property yield spread over government bonds edged back out in Q1, and remains at historic highs. We consider that relative pricing in the UK market is the most attractive since 2002.
The UK market is highly liquid both in terms of overall and inter-regional liquidity. The UK is ranked second only to Sweden – within Europe – in terms of overall liquidity, with 7.4% of stock turned over each year. In terms of inter-regional liquidity, the UK ranks first.
Source : DTZ (Groupe UGL)