UK PROPERTY INVESTMENT BULLETIN Q4 2012 Overseas Investors – Safe Haven or Helicopter Money??? Summary 2012 saw £35.5bn of UK investment activity, up marginally by 1.5% from 2011 (£35bn). It was the year of overseas investment in UK property, comprising 46% of total activity for the year (£16.6bn) and being the only net investor for the year of £7.73bn. The largest overseas investor was the US at 28% (£4.7bn), followed by the Far East at 24% (£4bn) and the Middle East at 11% (£1.8bn). On the sell side for 2012, the overseas investors were again the largest at 25% (£8.8bn, followed by UK institutions at 24% (£8.5bn). The main overseas investors were the Irish at 31% (£2.7bn), followed by the
US at 23% (£2.0bn) and the Germans at 20.7% (£1.8bn). The dominant position of the overseas investors this year for both the buy and the sell sides draws into question the motivation: - either the UK is a safe haven for investment over a long period of time or the UK is just a temporary secure place to drop and park invest money for the shorter term until the global tensions reduce. Office was the favourite sector for the year at 39% (£13.9bn) followed by other and retail/office mix both at 10% (£3.4bn and £3.3bn respectively). London was the most popular location at 52% (£18.3bn), then UK wide at 13% (£4.5bn). Q4 2012 saw £9.2bn of UK investment activity, an increase of over 4.5% from Q3 2012 (£8.8bn). Overseas continued to be the largest investors at 43% (£3.9bn), followed by UK institutions at 24% (£2.2bn). On the sell side for the quarter, UK institutions were the largest at 35% (£3.2bn), followed by overseas at 23% (£2.1bn) and UK unlisted property companies at 22% (£2.0bn). UK unlisted property companies were the largest net disinvestor for the quarter at minus £1.4bn, making it 12 quarters of net disinvestment from Q4 2009 with the exception of Q1 2012 when it was positive. This investment segment had been highly leveraged and very affected by the drop in values, so took advantage of the recovery in prices. UK institutions were net disinvestors in Q4 of minus £993m. Overseas were the biggest net investors of £1.8bn for Q4 2012, taking it 23 quarters of net investment since Q1 2007 with the exception of Q4 2008. 1 The average lot size in Q4 2012 was £31.2m, an increase from the average lot size of £28.4m in Q3 2012 and above the average lot size of £25m (period Q1 07- Q4 2012). The average initial yield for Q4 2012 continued to move outwards by 41 bps to 7.97% from 7.56% in Q3 2012 as illustrated in the graph below. Office and retail warehouse initial yields compressed by 32 bps and 64 bps respectively. Retail and industrial initial yields moved out by 45 bps and 49 bps respectively. Source: Property Archive The chart below shows the relationship between UK net investment/disinvestment and the level of average initial yields. As UK institutions become net investors in UK property, yields tended to compress and as they become net disinvestors, average yields...
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