Partner Article

Alternative investments star in 2016

Alternative investments ‘star performer’ of 2016

Though Commercial Real Estate investment in the North East reached £684m in 2016, declines were observed over the three main sectors of office, industrial and retail. However, ‘alternatives’ bucked the trend, with volumes rising 80% on the previous year reports CoStar, the independent research company that delivers real time research data and insight across the UK’s real estate sector.

CoStar data shows that this was the first drop in investment volumes since 2012, with declines across the main office, retail and industrial sectors.

To put this in context volumes fell across all UK regions in 2016, except for the West Midlands. The severity of the drop varied by region but for reference, investment across the entire UK dropped 27%.

Despite the regional fall, investment was 12% above the five-year average of £610m and the number of deals held up well with just a year-on-year drop of 7%.

CoStar’s sector by sector analysis of performance in the North East saw retail investment fall by the most at 59%. At £239m invested, investment in the retail sector in 2016 was 19% below the five-year average of £294m.

Office investment fell by 40% to £144m. Despite the drop, office investment was still 22% above the five-year average of £118m.

Industrial investment slipped by 37% to £67m but remained 18% above the five-year average for the sector of £57m.

The falls in these sectors need to be seen in the context of very recent performance with, for example, the North East being one of only three regions to see a rise in investment in 2015. In contrast to falling volumes across the wider UK, investment rose 32% that year.

The North East was also one of only two UK regions where investment rose for three consecutive years (2013 – 2015) so arguably performance had to dip at some point.

CoStar says investment in alternative sectors such as hotels, educational, student and healthcare assets increased by 80% to £184m.

The number of transactions for ‘alternatives’ also increased by 20% to 30, up from 25 in 2015 and 16 in 2014, in contrast to the wider UK trend of investment in ‘alternatives’ falling sharply, after a huge increase in 2015.

Local councils spent more than £120m on retail assets, largest of these being Northumberland County Council’s purchase of Manor Walks Shopping Centre in Cramlington for £78m off a net initial yield of 7.1%. This was the biggest deal in the region in 2016 says CoStar.

The average all-property transaction yield for the North East region rose by 30 basis points, year on year, to 8%. However, prime office yields in Newcastle remained stable at around 6%.

The CoStar regional market commentary was presented to G9/Developing Consensus represented by Gavin Black & Partners; Knight Frank; BNP Paribas Real Estate; Cushman & Wakefield; Lambert Smith Hampton; Sanderson Weatherall and The Hanro Group.

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This was posted in Bdaily's Members' News section by Knight Frank .