Average property yields
have fallen to their lowest point in more than a decade, according to Lambert
Smith Hampton’s Q2 UK Investment Transactions report.
The
all-property average transaction yield tightened by 22 bps in the second
quarter to 5.45%. It was the lowest level since Q4 2017 and the sharpest
quarter-on-quarter shift in four years.
The
research suggests the trend is a reflection of a flight to quality,
particularly in retail. High street retail yields reached a low of 4.14% as
activity focused on central London in deals such as Motcomb Estates’ £297.5m
purchase of Burlington Arcade at a yield of 3.2%.
Meanwhile,
UK shopping centre investment volume hit £120m – one of the lowest quarterly
totals on record and 74% down on the long-term quarterly average.
Property
investment as a whole totalled £13.5bn in Q2, closely in line with Q1’s level
but 8% down on the five-year average. The number of deals, however, was 13%
above the average.
Ezra
Nahome, chief executive of LSH, said: “Security of income is evidently
paramount in today’s market. While Q2’s healthy volume underlines the
continuing strong appetite for UK real estate, the sharp fall in the average transaction
yield points to a clear focus of demand towards quality assets, rather than
changes in pricing.”
He added
that the UK market was likely to remain resilient, despite the “dial on Brexit
uncertainty” having been turned up in recent weeks, adding: “Arguably, the
deepening issue around global trade with the US is no less a factor in the
market, and may even sharpen the focus of overseas buyers towards the UK,
particularly from the Far East.”