22. Juli 2011 
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Opportunity knocks for investors as distressed asset sales increase
The long awaited disposal of distressed assets in the UK is gathering pace, according to the latest research by commercial property firm Lambert Smith Hampton (LSH), UK Investment Transactions (UKIT) Q2 2011. The report recorded £6.6bn worth of investment transactions in quarter two, of which just below £1bn were distressed. This could herald an increase in sales, a trend which has been anticipated for some time.
Commenting on why the release of distressed assets is occurring now, Ezra Nahome, CEO of LSH explained: “Banks have been consistently reducing their exposure through consensual sales. We see this continuing. However, there was an uptick of receivership disposals in Q2 and we anticipate this will be an increasing occurrence over the next 12 months. The banks have focused considerable resource at their loan book and given they have their ‘arms around the problem’ decisions are definitely being taken to sell.”
Ezra went on to say: “Of the distressed assets sold in this quarter more than half were located in the regions, with the remainder in London and the South East. However, this does not tell the whole story, as the deals in London account for 90% of the total in terms of the value of the properties sold. For example the largest deal done was the sale of an office in the City of London to a Malaysian family for £228m, reflecting a net initial yield of 5.45%.”
As we saw in the first quarter of the year, UK institutions were still major players in the market accounting for £2.02bn of purchases. Yet they were squeezed into second place by overseas investors, who completed a number of particularly large deals resulting in them transacting £2.03bn worth of purchases.
The total value of transactions this quarter is down on Q1 2011 (£6.6bn, down from £8.4bn). However, if the sale of the Trafford centre for £1.6bn from Q1 were excluded, investment activity has remained stable quarter on quarter. Despite this drop in activity the all UK property yield has moved in this quarter for the first time in six months to 6.47%. This reflects an 18 basis point inward shift from Q1.
Focusing on the regions, Central London and South East offices continued to dominate the market, seeing a 30% and 50% growth in investment activity respectively. Central London offices continue to be the lead indicator for the whole of the UK commercial property market with yields now below 5%.
Ezra commented: “This is the first time we have seen yields at this level since the end of the last boom. This low yield reflects the attractiveness of the Central London market, which is regarded as a safe haven by investors, and demonstrates the finite number of available quality assets in the market.”
Unsurprisingly the lowest amount of investment activity was recorded in Northern Ireland, with the North East and Eastern England following. The North West and Yorkshire and the Humber also saw little activity, but the West Midlands saw the largest increase in volume with a 150% growth.
As reported in UKIT Q1 2011, the distribution warehouses and the logistics market is still popular with investors. Yields for these assets are almost 100 basis points keener than they are for other UK industrials. As expected, high street shops were the weakest performers in Q2. Investment volume more than halved and the yield moved out by over 100 basis points in the quarter. Retail warehousing did buck the trend by being second only to Central London Offices as the most sought after sector.
Ezra concluded: “As the year progresses I anticipate that some attractive opportunities, particularly in the regions outside Central London and the South East, will emerge as more distressed assets are released into the market in the second half of the year.”
Commenting on why the release of distressed assets is occurring now, Ezra Nahome, CEO of LSH explained: “Banks have been consistently reducing their exposure through consensual sales. We see this continuing. However, there was an uptick of receivership disposals in Q2 and we anticipate this will be an increasing occurrence over the next 12 months. The banks have focused considerable resource at their loan book and given they have their ‘arms around the problem’ decisions are definitely being taken to sell.”
Ezra went on to say: “Of the distressed assets sold in this quarter more than half were located in the regions, with the remainder in London and the South East. However, this does not tell the whole story, as the deals in London account for 90% of the total in terms of the value of the properties sold. For example the largest deal done was the sale of an office in the City of London to a Malaysian family for £228m, reflecting a net initial yield of 5.45%.”
As we saw in the first quarter of the year, UK institutions were still major players in the market accounting for £2.02bn of purchases. Yet they were squeezed into second place by overseas investors, who completed a number of particularly large deals resulting in them transacting £2.03bn worth of purchases.
The total value of transactions this quarter is down on Q1 2011 (£6.6bn, down from £8.4bn). However, if the sale of the Trafford centre for £1.6bn from Q1 were excluded, investment activity has remained stable quarter on quarter. Despite this drop in activity the all UK property yield has moved in this quarter for the first time in six months to 6.47%. This reflects an 18 basis point inward shift from Q1.
Focusing on the regions, Central London and South East offices continued to dominate the market, seeing a 30% and 50% growth in investment activity respectively. Central London offices continue to be the lead indicator for the whole of the UK commercial property market with yields now below 5%.
Ezra commented: “This is the first time we have seen yields at this level since the end of the last boom. This low yield reflects the attractiveness of the Central London market, which is regarded as a safe haven by investors, and demonstrates the finite number of available quality assets in the market.”
Unsurprisingly the lowest amount of investment activity was recorded in Northern Ireland, with the North East and Eastern England following. The North West and Yorkshire and the Humber also saw little activity, but the West Midlands saw the largest increase in volume with a 150% growth.
As reported in UKIT Q1 2011, the distribution warehouses and the logistics market is still popular with investors. Yields for these assets are almost 100 basis points keener than they are for other UK industrials. As expected, high street shops were the weakest performers in Q2. Investment volume more than halved and the yield moved out by over 100 basis points in the quarter. Retail warehousing did buck the trend by being second only to Central London Offices as the most sought after sector.
Ezra concluded: “As the year progresses I anticipate that some attractive opportunities, particularly in the regions outside Central London and the South East, will emerge as more distressed assets are released into the market in the second half of the year.”
