Foreign investors are continuing to take the lion’s share of the year end commercial property market in the U.K., according to a new report. Colliers International’s December Property Snapshot for the U.K. also indicates that positive sentiment from stronger U.K. data is being offset by eurozone instability, new worries about U.S. fiscal policy and on-going uncertainty about impacts of impending U.K. public sector cuts.
It reveals that investment transactions reached £26.4 billion in the year to the end of November. Foreign purchasers came from the Netherlands, Canada, Norway and Malaysia.
There were few shopping centre transactions reported in November, but retail parks and supermarkets continue to attract keen bidding.
Colliers analysts believe that transactions are increasing in line with year-end expectations across most commercial segments. The report says that prime yields are stable, with secondary continuing to show weakness as more ‘distressed assets’ reach the market.
Retail sales volume growth fell from 1.1 per cent to 0.3 per cent in October. Despite evidence that retailers are rebuilding margins, anecdotal evidence suggests that discounting is supporting final year-end sales. Further administrations are expected in 2011 with Begbies Traynor data showing that the rate of recovery in the retail sector is slowing. Single site retailers and small regional chains are the most at risk. And the IPD retail void rate though has fallen to 5.3 per cent, the lowest level since February 2006.
The report suggests that retailers will continue to struggle as attempts to increase trading margins are met with weak consumer confidence. Further retail failures are expected in 2011.
In the City headline rents have reached £57.50 per square foot with incentives at 18 to 24 months on the strength of lettings in Heron Tower and 30 St Mary Axe. There have been fewer City deals, but deal size is up.
In the West End headline rent remains at £85 per square feet. Demand remains sluggish and the number of deals year on year completed at more than £70 per square feet is unchanged in 2010.
In the national office sector although vacancy rates are improving in most markets due to limited new space, the rates generally remain high compared to the long term trend and rental growth rates are not yet fully stabilized.
The report indicates that central London and regional office markets are generally quiet reflecting the traditional year-end slow down, but also economic uncertainty. House prices continue to show weakness as mortgage approval numbers show no improvement.
It concludes that a fragile banking system, weak consumer confidence and worries about fiscal retrenchment continue to conspire to create a weak residential market.