2017 Q1 investment volumes set to comfortably beat long-term average as prime yields harden for sixth successive month

28 March 2017

Average UK prime yields sharpened to 4.79% in February 2017, with the UK now in the longest sustained period of decreasing yields since early 2014. In addition, as a result of the sale of a number of trophy real estate assets across the UK during the first quarter, Savills expects investment volumes for the first three months of this year to comfortably exceed the long term average of £9.8 billion.
According to the international real estate advisor’s latest Market in Minutes report, yields in the City Office market dropped to 4% in February due to falling supply and continued demand from investors.

Downward pressure is also visible in the South East and Regional Office markets, where yields currently stand at 5.25%, due to increased activity by overseas investors who amplified their exposure to the UK’s regions to account for 29% of total regional investment volume in 2016, the highest level since 2012.

View Savills Market in Minutes report for March 2017 here

Mark Ridley, CEO of Savills UK and Europe, says: “We are currently seeing steady investment volumes across all markets, but one of the biggest barriers to liquidity is the lack of investment stock currently being considered for sale. With very little speculative development in the office or logistics sector and continued occupational demand, pre-let fundings or refurbishment opportunities will push investment volumes forward.”

Kevin Mofid, director in the commercial research team at Savills, adds: “Overseas investors have been increasingly active in the UK’s Regional Markets, with European buyers, particularly those from Germany, being especially busy. Investors are set to continue to focus on the regions for the foreseeable future as total returns in some regional office markets are predicted to outperform many Central London sub-markets over the next three to four years.”

 
 

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