Despite economic uncertainty plaguing other sectors, the UK commercial property industry hit a six-month high in September 2020, reporting £3.2 billion in transactions in that month alone; the highest figure since March 2020. According to Colliers International’s October Snapshot, September 2020 marked a rise in investor interest across most asset classes, with alternative markets and industrial sectors reporting the most activity and each sector attracting around £1 billion in investment.
Colliers International’s report cautioned that economic activity could potentially slow in the fourth quarter of 2020, sparked by new lockdown restrictions imposed by the UK Government. Nevertheless, in the first week of October alone, UK commercial property transactions totalled £1.7 billion.
Oliver Kolodseike is Deputy UK Chief Economist for Colliers International. He indicated that “sheds and beds” would be the outstanding commercial property performers for 2020, driven by demographic trends and changing consumer behaviour. Mr Kolodseike explained that the private rented sector had already seen £3.8 billion in investment in 2020; higher than any annual total prior to 2018. Zuneth Sattar, Xaviar Investments Director, will be keeping a close eye on the markets.
The largest deal in September 2020 was the Morello II scheme in Croydon, which attracted £250 million in investment. Building on the successes of the first phase of the Morello Estate project, Morello II is a twin tower residential project that will deliver a further 456 residential flats and 20,000 square feet of retail and commercial floorspace.
In spite of the economic ramifications of Brexit and the Covid-19 pandemic, commercial property yields remained buoyant throughout the UK in 2020, with the exception of retail and leisure premises. Nevertheless, as Mr Kolodseike indicated, the retail sector was already showing signs of recovery in late 2020 – particularly among retail warehouses and supermarkets, which accounted for more than 50% of investment in the sector in September 2020.
In the UK office sector, investment volumes topped £700 million in September 2020, the largest value deal being the purchase of Nine Elms Park by Quadrant Estates for £150 million. In the same month, retail investment peaked at £550 million, the highest monthly figure reported since April 2019.
Andrew White, Head of Residential at Collier’s International, explained that housing was still a strong asset for institutional investors. With the public forced to spend more time at home than ever before in 2020, the impetus to meet housing demands is even greater. Mr White pointed out that the build-to-rent sector had continued to grow year-on-year. With property ownership remaining an unaffordable pipedream for younger generations, demand for quality rental accommodation close to central business districts is unlikely to diminish any time soon.
Andrew White said that Colliers International had advised on significant deals in both London and Manchester in 2020, providing market insights for prospective investors.
Meanwhile, in Scotland growth was also reported in the commercial property sector, with investment topping £477 million in the third quarter of 2020. This represented a marked increase on the preceding ‘Covid quarter’, when investment in commercial property in Scotland plummeted to a virtual standstill at just £35 million.