The second lockdown in the UK did not dampen investor enthusiasm as property transactions grew tremendously in November. The outlook for 2021 is positive amongst international investors, as the proportion of investment from international sources skyrocketed. Given that yields are at an all-time low in international bond markets, coupled with ongoing volatility risks in equity markets, UK real estate assets continue to attract a large share of long-term oriented capital as a hedge.
Savills examines the provenance of investments through 2020 and finds the most salient sources include institutional investors, at 51 per cent of turnover volumes, followed closely by international investors at 39 per cent. Investors are acting now to take advantage of relatively compressed and potentially underpriced safe assets, particularly with the wide-ranging growth forecasts for the commercial sector in the medium to long term.
JLL for instance expects that premium offices will experience a continued flight to quality. The Ernst and Young UK Attractiveness Survey revealed that the share of overseas companies that plan on investing in the UK in the next year is now 25 per cent, with 43 per cent continuing to pursue UK investments planned before the pandemic despite movement restrictions. Nearly a third (31 per cent) of overseas investors expect real estate and construction to underpin future UK growth, this grew from 10 per cent in 2019 - the highest of any sector.
In the residential sector, Knight Frank forecasts 4 per cent growth in prime Central London next year and 5 per cent growth in Prime Outer London. Whilst, in commercial, Colliers International’s latest report states that, over the course of the first three quarters of 2020, UK commercial real estate volumes approached £29 billion with a predicted full-year total of £40-45 billion.
The office sector attracted the largest share of investment in October at £1.5 billion, with London West-End monthly investment volume hitting £574m in November, 60 per cent higher than five-year averages for the month.
UK property is now one of the top three sectors that investors gravitate to, according to Ernst and Young data from a survey of 220 senior investment decision-makers in non-UK companies — including 174 with activities already established in the UK.
During the past three months, it is worth noting that Asian investors accounted for 38% of turnover by volume, ahead of European investors at 27% and UK purchasers at 12%, reveals a report from Savills.