Following the effects of the pandemic in 2020, activity is now showing clear signs of recovery in the South East office market. Investment demand has reawakened in Q2 2021 with volumes reaching £1.5bn, significantly up 290% on Q1 2021 at £519m. This brings total H1 volumes to £2.0bn, up 73% on the same period last year.
The largest transaction of the quarter was Brookfield’s purchase of Atom Portfolio in June for £716m, marking the largest transaction so far this year. Asia-Pacific investors were relatively quiet this quarter and as a result, Private Equity investors have been the most active purchasers in the second quarter of the year, deploying £1.1bn and accounting for a 74% share. The Atom Portfolio purchase significantly contributed to this comprising nearly half of the Q2 transactions.
Hugh White, Head of National Office Investment
Looking ahead Q3 2021 continues positively with a significant volume of assets under offer or due to go to bids as we write.
The observations that we highlighted last quarter remain very much at play. Namely prices hardening for high growth /specialist employment sectors and well let offices (10 years +) while pricing is drifting for core, core plus and value add to varying degrees as evidenced in our Price Movement schedule below.
We anticipate this trend in the market to continue. The weight of money seeking an income return continues to increase with new entrants from the US (Global Net Lease, Blackbrook, Income Realty) now competing with the well established UK and Middle Eastern investors.
The US PE houses continue to raise significant sums of investor capital on a thematic basis and hence the weight of money seeking the Life Science sector is notably ahead of that subsector’s investment stock universe which is further adding to the price compression (in addition to the rental growth pressures).
Encouragingly while pricing has continued to drift for Core Plus and Value Add opportunities we are seeing a number of investors now committing to repeat purchases in the market (Kennedy Wilson & Trinova). These are helping crystalise market pricing.
Undoubtedly one of the key considerations on all new acquisitions is how can a building be future proofed and meet the necessary ESG and sustainability accreditations. There is much to do around this topic and with the situation evolving rapidly it is essential that intelligent advice is sought. At BNP Paribas we are uniquely placed to offer this.
K Shaped Recovery