Investment Brief - Summer 2019

Executive summary

• Both domestic and overseas investment activity in UK real estate lost momentum in early 2019 while Brexit-related uncertainty dominates the headlines. Quarterly investment volume in UK commercial property in Q1 was the lowest since the referendum result in Q3 2016.
• Annual total returns are undoubtedly past their mid-2018 peak and there remains a wide variation in performance across the different segments. Industrial assets are way ahead of their office and
  retail counterparts, with not only stronger rental growth but also stronger positive yield impact.
• Following a few months of inactivity in the lead up to the original Brexit deadline, we have seen a revival in buyers’ appetites in Q2, although the supply of investment assets has, commensurately, also slowed given lack of vendor confidence and motivation to sell.
• There is equity to be invested, and there continues to be depth to the lending market and rates are competitive. Consequently, we anticipate greater deal volumes in H2 2019, regardless of the Brexit outcome, as more clarity ultimately emerges.
• Industrial is still forecast to outperform over the next three years. In particular there is strength in multi-let, where investors look favourably at assets that still have pent up rental growth to be realised. In contrast, retail segments are anticipated to underperform, with shopping centres particularly affected.
• Commercial property annual total return is set to fall again in 2019 to a low point of this cycle of 2.4%. Income return will partially offset expected negative capital growth that will result from yield softening across most property segments