- Strong 2015 investment volumes mask slowdown in second half of the year as UK institutions took their foot off the throttle
- Pause in the market likely to be short lived with cash still being allocated to the office sector
- South East offices remain attractive for investors
Investment in the UK office market outside central London reached £8.35bn in 2015, according to a report from Cushman & Wakefield.
There was a strong first half to 2015, with £4.53bn of investment transactions, which was a 49% increase on H1 2014. However, activity slowed in the second half of 2015 and was down 29% on the same period in 2014.
UK institutions were well funded and their investment volumes exceeded £3.3bn during 2015, but their market share slipped by 10% over the year to 40%, with a number of investors poised to dispose of assets in locations where they have already achieved the returns they require.
In contrast, appetite from overseas investors remained strong in 2015. A total of £1.83bn completed - 22% of all UK transactions - with any interest outside London mostly confined to the South East and best regional alternatives where occupational demand strengthened.
Looking ahead, there is a healthy investment pipeline with £1.3bn of assets under offer and £600m available, which, if concluded, could bolster Q1 2016 figures. It is anticipated that further investment opportunities will become available during the second quarter, as unsold portfolios are dismantled into smaller-sized opportunities and where asset management objectives have been fulfilled on recently purchased assets.
Chris Lewis, Partner, Business Space Investment at Cushman & Wakefield, said: “Although sentiment slowed in the latter half of 2015, with suppressed transaction volumes reflecting investors and in particular institutions pausing for breath to take stock of changes in the market, we anticipate the slowdown to be short lived.
“While there has been stock coming forward, generally speaking, there has been limited pressure on landlords to sell. Institutions have been taking a back seat on the buy side despite having cash to spend, which may halt the downward pressure on yields for the time being.
“However, as 2016 progresses there will be more pressure to deploy cash, while economic uncertainties, such as those associated with Brexit, may unnerve some parties into selling, opening up additional investment opportunities. With a healthy pipeline of space currently under offer we expect to see investment volumes gather pace through the year.”