Investment volumes into UK commercial property increased significantly in the first half of 2021 as the market continues to recover.
According to Savills, £25.7bn worth of commercial property investments were recorded in H1 2021, unsurprisingly exceeding the £22.3bn invested in H1 2020 by 15%, but also surpassing the £23.4bn volume seen in H1 2019 by 10%.
The research reveals that 2021 investment to date has been driven by the industrial sector, where transaction volumes of £7.4bn at the half year point have already easily exceeded the annual average of £6.7bn, and the offices sector which has been steadily recovering throughout the year.
June saw £2.8bn deployed into UK offices, making it the largest monthly volume for the sector since December 2019, according to Savills.
In its July Commercial Market in Minutes report, the company said that that if the momentum which has been steadily building over H1 continues, total investment volumes for 2021 should exceed 2020’s £50bn total.
June’s activity has led to yields continuing to compress, with the Savills average prime yield moving in to 5.14%, with further hardening expected in H2.
Richard Merryweather, joint head of UK investment at Savills, said: “The popularity of UK logistics as an asset class has been steadily accelerating since 2017, but since Covid-19 demand has exploded due to the exceedingly strong occupational market and good prospects for further rental growth.
“The future of offices, meanwhile, may have been questioned but they continue to be a core buy for many investors. We therefore expect both sectors to continue to drive the market during the rest of 2021.”
Kevin Mofid, director in Savills commercial research teams, added: “Occupier demand for warehouse space shows no sign of abating with take-up for H1 2021 82% above the long-term average. This surge has corresponded with supply falling at its fastest pace ever, meaning that the nationwide vacancy rate is now 4.37%.
“Given this demand-supply imbalance, there is a clear case to suggest that actual rental growth will exceed the current forecasts. We therefore expect to see 18-24 months of accelerated rental growth before a gradual shift back to the levels already forecast over a five-year period.”