An in-depth overview
In line with the occupier market, the South East office investment market has also slowed over Q1 2019.
Total volumes for the quarter reached £375m, 52% down on the same quarter in 2018. However, given the current economic and political uncertainty affecting the UK, a slowdown in activity over this first quarter was to be expected.
A slower first quarter also does not necessarily predicate a weaker performance over the year: in 2016 Q1 volumes reached £316m but by year end volumes had surpassed £2.7bn, in line with the 10-year market average.
Over Q1 2019, investor caution and stalled decision making, alongside a relative lack of product on the market, has impacted volumes.
Local Authorities continued to be the dominant investor, accounting for 32% of total investment, with Reading Borough Council and West Sussex County Council, among others, making purchases over the quarter. UK Institutions and Funds drove 22% of investment activity, followed by Overseas Investors which accounted for a 14% share.
One of the largest transactions of the quarter saw Reading Borough Council acquire Four10 Thames Valley Park, Reading for £38m, reflecting a yield of 5.3%.
Another key investment sale comprised the £36.1m sale of Victory House, Brighton to NFU, reflecting a yield of 4.9%.
Another key impact on investment volumes over Q1 2019 comprised the lack of larger lot sizes transacted. Investor focus was instead concentrated on smaller lot sizes under £40m.
Prime yields have recorded some outwards movement at Q1 2019, standing at 5.00% in the South East, up from 4.75% at Q4 2018.
The South East still offers relative value in comparison to Central London offices with prime yields in the City and West End standing at 4.00% and 3.50% respectively.
At 5.00%, South East office yields also now sit slightly above a number of the Big Six cities. Birmingham, Bristol, Edinburgh and Manchester all stand at 4.75% at the Q1 stage, with Leeds (5.00%) and Glasgow (5.25%) sitting slightly above.