Member Article

Investment - big challenge is lack of stock

2013 saw a year of two halves in the North East commercial property investment market says Dickon Wood, partner, investment, Knight Frank.

The first two quarters were fairly consistent with the previous year’s performance but Quarter 3 and Quarter 4 saw a marked improvement in sentiment and recovery in pricing.

Transaction volumes in 2013 rose to £432 million which is a 45% increase on the 2012 figures of £230 million. Even so this is still some way short of the 2006 figures which peaked at £700 million.

Individual transactions were also up with 43 significant deals taking place in 2013 compared to 27 in 2012.

The analysis of these deals does show a similar pattern in that once again there were five key institutional transactions in the region which amounted to 75% of the total transaction volume. These deals included Silverlink Retail Park (£131 million), Hill Street Shopping Centre in Middlesbrough (£49 million) and two annuity deals let to Newcastle University (£106 million).

These deals were noticeably different however in that yields are in places 50 basis points sharper than in the previous year.

Outside of these exclusive ‘mega deals’ there was a further £100 million of transactions in our region at an average lot size of £2,630,000 which once again is up on 2012.

Foreign investors continue to dominate this section of the market but there was significantly more interest from UK institutions than at any time over the last five years. This interest has resulted from the general upturn in the economy with larger flows of cash allocated to property and pricing becoming so competitive in the South East that we are experiencing a trickle effect as money that cannot be placed in the South East is now looking to be allocated into the regions.

While a resurgence in the market is to be welcomed, the big challenge going forward this year is likely to be the lack of stock available and this in itself will continue to apply pressure on yields.

To conclude therefore, 2013 will be seen as the turning point in the market.

Rental values have stabilised and the lack of development over the last five years means that rental growth is now a distinct possibility as the level of incentives offered to ingoing tenants is reduced.

Investors are now returning to the North East and yields should continue to harden for quality institutional grade stock.

This was posted in Bdaily's Members' News section by Chris Dobson .