UK commercial property investment falls 9%

Commercial property transactions in the UK fell by 9% during 2012, according to today’s report from broker Jones Lang LaSalle Inc (JLL).

Investment in 2012 totalled £30bn, down from just under £33bn in 2011, with regional centres outside the capital performing the weakest.

Whilst £18bn of commercial real estate transactions in London were enough to return the highest levels seen for four years, investment outside the capital reached only £12bn – the lowest return over the same period.

Limited lending by banks in the UK, as well as a dearth of prime commercial properties, has led investors to focus on developing properties with a guaranteed return within the capital, according to the Chicago-based broker.

A number of projects – including The Pinnacle, The Leadenhall Building and 100 Bishopsgate - are scheduled for completion within the next two years, with JLL’s forecasts predicting an immediate uptake of space.

JLL highlight the profitability of new-build projects over renovations, as a lack of existing tenants has the potential to spark bidding wars between international investors.

The report said: “Given the limited finance for this type of activity, pricing will be competitive for those with equity and therefore we expect to see more overseas capital looking for opportunities to partner with local specialists and fund prime developments”.

However, fund managers such as Blackstone Group LP – who manage the world’s largest property fund – will also look for investment opportunities in renovation projects, improving their quality and changing their usage to generate the highest levels of profits.

Banks are predicted to continue the sale of distressed loan books during 2013, where commercial real estate has been used for security, whilst funds that purchased loans from financial institutions during 2009 and 2010 are also more likely to sell, according to the report.

Despite the poor returns in regional centres during 2012, JLL predict a stronger showing in 2013 as funds look to capitalise on an anticipated rise in property values in the following years.

The report states: “In the regional markets, capital values have not yet started to recover and an anticipated recovery has yet to be priced in”.

Image courtesy of Dave Carterthelimey