Q2 2021: Industrial Strength

Key take aways‍

• £13.9bn of assets changed hands in Q2, rebounding 24% on the previous quarter and 7% above the five-year quarterly trend. However, the uptick reflected the increased prevalence of especially large deals, with the number of transactions down slightly on Q1.
• The recovery of investment activity in the retail sector continued in Q2, with volume of £1.5bn closely in line with Q1 and only 10% below the five-year quarterly average. The recovery continues to reflect a strong groundswell of demand for retail warehouses, where trading resilience and a perception of relative value drove volume to a four-year high of £855m in Q2, boosted by Brookfield’s £330m (NIY 8.60%) portfolio purchase of seven retail parks from Hammerson.
• Despite uncertainty over the direction of occupier demand in the wake of the pandemic, Q2 office volume of £4.6bn rebounded by 72% on Q1 and was only 9% below trend. Office parks was the only subsector to perform above trend, however, with volume of £1.0bn dominated by Brookfield’s £714m acquisition of the Arlington portfolio, the largest overall deal in Q2. Comprising 36 assets spanning the UK’s science ‘golden triangle’, the deal reflects strong investor appetite for science covenants in the current climate.
  
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Ezra Nahome, CEO of Lambert Smith Hampton, commented

“While an atmosphere of caution persists around unlocking of restrictions, the sheer weight of global capital pouring into UK real estate is testament to its enduring status as a relative safe haven. With strong and unwavering demand set to continue for secure income, the availability of stock is perhaps the main possible impediment to volume. And, subject to avoiding any relapses with the virus, I am confident that volumes and activity will improve further still in the second half of the year. The residential market has benefitted hugely from government interventions over the past year. With greater perceptions of risk in other commercial sectors in the wake of the pandemic, investment exposure to residential may well start to move ahead of the other core commercial sectors in the near future. As some parts of the retail sector exhibit encouraging signs of recovery, after everything we’ve been through, the spotlight of uncertainty has arguably shifted towards the office sector. Aligning offices to be better suited to post-pandemic demand is likely to be a significant area of value-add opportunity moving forward, albeit as and when pricing moves closer to buyer aspirations."

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