Cautious optimism returns to commercial real estate market

Q1 2011 UK direct investment volumes increased 41% year-on-year according to JLL

Article posted: 13 May 2011

Direct commercial real estate investment in the UK reached £8bn in the first quarter of 2011, a 41% increase on Q1 2010, as a mood of cautious optimism returned to the market, according to new research released last week by Jones Lang LaSalle. 

Although transactional activity was down 18% compared to the strong performance recorded in the last quarter of 2010, this was widely expected as the start of the calendar year is traditionally a quiet period, it was however 20% higher than Q1 2009.

The UK remained the largest investment market in Europe, the Middle East and Africa, capturing 38% of the capital flows in the first three months of this year, compared with 35% in Q1 2010. Transactions were particularly focused on the market for offices in Central London due to its ‘safe haven’ status and the strong occupational market fundamentals.

Damian Corbett, Head of UK Capital Markets at Jones Lang LaSalle, said: “Investor focus very much remains on Central London and the South East markets. We are continuing to see huge demand from overseas investors for large prime assets with strong covenants, with particularly aggressive bidding on good income product within the City offices market. The West End office market is now starved of quality stock, and pricing within this and the City office market is already above the long-term cap rate average.”

Whilst JLL anticipates investment volumes will grow by up to 30% this year across the EMEA region, transactional activity within the UK investment market could be restricted by a lack of product. 2011 projections for the UK alongside other core Western European markets are for sub-10% growth, which, whilst  erring on the side of caution, acknowledge that Central European real estate markets will be the key drivers of volumes this year.

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Posted by Janet