National Investment Market Overview
Overview
Despite the hottest June on record, the national investment market is operating without its SPF…
Stock, pricing and finance (SPF) challenges continue to weigh on the market as investment volumes remain below the long term average and c.50% below this time last year. Stock remains in limited supply, pricing remains dislocated and the continued volatility in the debt markets and rising interest rates is making financing deals particularly tricky.
That being said, we are beginning to see pockets of optimism in the market as pricing continues to correct itself and the gap between vendors and buyers is narrowing. There is a growing sentiment that we will be hitting the ceiling for interest rate rises in H2 and a swift reduction is expected if the Bank of England can grasp the issue of inflation. Thus, whilst the environment remains particularly challenging, the sentiment is strengthening as we look ahead to the latter part of 2023 and early 2024. Despite a high interest rate environment we are seeing value re-emerging and the UK investment market has strong fundamentals with a significant amount of dry powder ready to move.
We anticipate the market will remain subdued throughout the summer as we await any further interest rate rises, however Q4 will be a particularly strong period with an expectation transaction volumes will revert to trend by the close of 2023.
Industrial Market
Overview
Despite macroeconomic instability, momentum is gradually building back up in the industrial sector. Interest rate rises continue to foster nervousness but there is a growing acceptance of the pricing correction.
Transaction volumes are down by circa 70% on last year with many investors waiting for the storm to pass whilst others have a renewed sense of optimism and are back in ‘buy mode’.
Rental growth has continued throughout H1 2023 at 3.7%, however with inflationary pressures there is growing occupier cautiousness with leases typically taking around 6-9 months to complete.
Developers remain reluctant to speculatively build however there remains some development where rental growth projections remain compelling.
Office Market
Overview
The office market remains a challenging landscape as buyers and sellers continue to battle ongoing headwinds and largely remain apart on pricing aspirations. We continue to see a two tier market where there is a reasonable level of activity for high quality, longer income offices and very little appetite for shorter income offices requiring short to medium term capital expenditure / EPC upgrades.
Food Store Market
Overview
It has been another interesting quarter for food stores, whilst transactions have slowed, mirroring much of the market, stock has continued to come through, albeit slowly. The covenants most widely available have been Morrisons and Asda. Much of the stock being looked at is off market, but sales that have gone wide include the circa £650M Asda sale and leaseback (which we understand is under offer and has attracted institutional interest), Morrisons’ supermarkets in Gloucester, Leeds and Doncaster, and a Waitrose supermarket in Alderley Edge. There is still a lack of prime supermarket stock in the market, which is restricting transactions at the top end of the yield profile.
Retail Market
Overview
Across the wider property forum, transaction volumes have dropped massively in the face of increasing interest and borrowing rates. Most private investors who borrow money on asset purchases take the view that commercial property prices have not yet been adjusted to reflect the risk and illiquidity of property when gilts and bonds can offer attractive returns.
Retail Warehouse Market
Overview
Despite the reduced number of retail park transactions over the last quarter, those which have traded have generally been well received in the market and pricing has held up. This has continued to be most notable for prime retail parks which have the attention of the UK institutions, highlighted by CBRE Capital Advisors purchase of Griffiths Way Retail Park in St Albans.