Sector distribution 2014 to 2017
Retail investments increased their share of the year’s result, accounting for £420m, 69% of the total sum raised, up from 66% in 2016. The volume also showed an increase, up to 77% from the previous year’s 74%. This also represents an increase in the average lot size for the Retail sector, up by 5% to £594,000.
Volume gains in Industrial assets seen in 2016 were not sustained in 2017, despite, or perhaps due to the strength of demand in the wider market for the sector. Vendors appeared to be more inclined to hold assets rather than trade. £46.9m of assets were sold, representing 8% of total sales and an average lot size of £1m.
The Office sector showed a 35% increase in value, from £38m to £51.5m of sales, 8% of the total (2016 – 6%). The influence of Permitted Development Rights is still apparent, although the reduction in occupational supply is having a positive effect on rental levels in some sub-markets. The average size of Office investments is £1.1m, again a 20% increase over the 2016 figure.
Regional distribution 2014 to 2017
Supply generally in the South East continues to be tight, despite exceptional demand,
The total raised on the sales of assets in the South East and London eased for the first time in a number of years, £273m of assets were sold, accounting for 45% of the total value in 2017 (48% in 2016).
The “Hold” strategy identified last year still appears to be the option being adopted by many Vendors.
Increasing levels of activity were seen in the North East as well as the East and West Midlands, where sales across these three regions showed a marked improvement to £168m, 28% of the total, an increase from a more modest 23% in 2016. The average Regional lot size saw a significant increase, up to £551,000 from £499,000 in 2016.
Yield analysis 2008 to 2017
Analysing single-let Retail assets, sold “under the hammer”(a sample of over £1.5billion in the last decade) we categorise the properties into “A-grade” and “B-grade” investments, depending on the quality of the tenant, the length of income and the location.
The continuing demand for “A-grade” investments has sustained yields between 5.5% and 6.5% over the whole decade – with the exception of the period around the financial shocks in late 2008. The yield stability of the better quality investments is clear.
“B-grade” assets, with a higher risk profile, show greater volatility, and therefore a spread of 7% to almost 10%.
During the course of 2017 the range of external events which influenced confidence is clear to see. The early part of the year saw the continuation of the downward pressure on the “A-grade” stock which had started in mid-2016. The long-heralded interest rate rise in the Autumn, coupled with Brexit uncertainty, moved the “A-grade” yield out to 6.1% by the end of the year.