There were 30 deals over the £100m mark during the quarter, well above the five-year quarterly average of 20 deals. The total quarterly volume was only down 6% on the previous quarter, but the number of deals was down 20%.
“On face value, Q1’s volume was more than respectable given the uncertain environment the market is operating in,” says Oliver du Sautoy, head of research at LSH. “However, it was flattered by a flurry of major deals and masked what was actually a relatively quiet quarter.”
Investment activity was strong in London offices, student accommodation and industrial.
More generous incentives have helped keep rental levels elevated. Over the past year, rent-free periods for a 10-year lease have moved out from 12 to 15 months to 22 months in the West End and the corresponding figure for the City is slightly higher.
The £1.15bn sale of the Cheesegrater building helped take the volume of deals in the central London office market to £4.2bn,making this quarter the strongest since April 2015.
It was also a strong quarter for the wider Greater London commercial property market, which also recorded its best quarter since April 2015. Overseas investors were particularly active, accounting for 10 of the 12 deals over £100m.
Outside the capital, volumes were more subdued. At £3.8bn, the volume of single-asset deals in the UK regions was 10% below the five-year quarterly average, mainly because of a lack of stock for sale. The West Midlands was the only region to see Q1 volume significantly ahead of its five-year quarterly average, by 18%. This was boosted by Unite Group’s £227m purchase of a 50% stake in Aston Student Village.
The retail market was also relatively quiet with Q1 volumes at their lowest level since April 2012 and 32% below the five-year average, due largely to a lack of shopping centre deals.
Looking ahead, Sautoy was upbeat about the outlook for investors. “With so much of a focus on political developments, it is easy to overlook that the UK economy has quietly continued to demonstrate resilience,” he said. “Should the path towards Brexit be less troublesome for the economy than many fear, those investors who are willing to take on risk may benefit most of all.”