UK - Rising interest rates will significantly slow leveraged investment in UK real estate at least until 2008, according to a report published by Jones Lang LaSalle (JLL).
Despite investment in the first half of 2007 above €27bn – matching that for the same period – the firm identified a change in the market, with fewer bidders attracted to compressed yields.
US and Irish investors accounted for more than 50% of acquisitions while UK investors were net sellers, divesting assets worth £5.5bn.
A spate of trophy transactions – including the £1.1bn (€1.6bn) sale of HSBC’s Canary Wharf headquarters to Spanish property group Metrovacesa – boosted investment volumes.
However, JLL forecasts diminished investor activity in the UK market until 2008, when cheaper debt will make debt-backed buyers resume acquisition activity.
Saturation is said to have pushed UK pension funds to look for returns in niche asset sub-classes and geographic diversification in continental European and Nordic real estate markets.
JLL appears to have reinforced this perception as its continental Europe first-half figures showed a 4% increase on the same period last year.
Despite UK pessimism, last week’s acquisition by Irish property group Blackrock International of an office-and-warehouse facility in Milton Keynes suggests remaining opportunistic traction in the UK market.
The two-property facility is located on a six-acre site in a city seeing strong demand for both asset types.
Andrew McLindon, a spokesman for the firm, also cited the acquisition’s location midway between London and Birmingham, the UK’s two largest cities, and its proximity to major transport networks as making it an appealing proposition.
Both buildings are on long leases and the €12.25m acquisition reflects an initial yield of 6.85%.
McLindon declined to confirm plans to develop 1.2 acres of land accompanying with the site, but suggested the additional land presented "an attractive longer-term development opportunity".