North West's investment activity plummets but distressed asset sales increase

The total value of commercial property investment transactions across the North West fell back in the three months ending June 2011 to £118.6 from £1.79bn in the previous quarter, according to the latest research, UK Investment Transactions (UKIT) Q2 2011, by national commercial property firm Lambert Smith Hampton (LSH).

Across the region, investment transactions fell back by a staggering 93.3% from the previous quarter. However, with the omission of sale the Trafford Centre in January for £1.6bn, this figure is reduced significantly, to just under 40%.

Significant deals to take place during Q2 included:
• Orchard Street Investment Management’s acquisition of Market Walk Shopping Centre in Chorley for £22.2m, reflecting a net initial yield of 7.5%;
• Royal London Mutual Insurance Society’s acquisition of two retail units on Eastgate Street in Chester for £12.35m, reflecting a net initial yield of 4.67%; and
• Kenyan-based Sameer Group’s acquisition of the Barclays call centre in Wavertree, Liverpool, for £10.45m, reflecting a net yield of 7.75%

Of the total value of transactions, 20% was from UK Private Companies, while UK Institutions committed £48m; a 40% market share for the second quarter of the year.

Despite last quarter’s figures being skewed by the Trafford Centre deal, the Retail and Leisure sector remained the most sought after asset class across the region, accounting for 54% of total activity.

Nick Davies, Head of Valuation at LSH Manchester, commented: “Outside the South East the recovery remains slow although there are improvements in yields for food and retail warehousing in the North West and the regions.”
 
Focusing on the UK as a whole, the long awaited disposal of distressed assets is becoming more prevalent. The report recorded £6.6bn worth of investment transactions in quarter two, of which just below £1bn were distressed. This could herald an increase in sales, a trend which has been anticipated for some time.
 
Commenting on why the release of distressed assets is occurring now, Ezra Nahome, CEO of LSH explained: “Banks have been consistently reducing their exposure through consensual sales. We see this continuing. However, there was an uptick of receivership disposals in Q2 and we anticipate this will be an increasing occurrence over the next 12 months. The banks have focused considerable resource at their loan book and given they have their ‘arms around the problem’ decisions are definitely being taken to sell.”

Ezra went on to say: “Of the distressed assets sold in this quarter more than half were located in the regions, with the remainder in London and the South East. However, this does not tell the whole story, as the deals in London account for 90% of the total in terms of the value of the properties sold. For example the largest deal done was the sale of an office in the City of London to a Malaysian family for £228m, reflecting a net initial yield of 5.45%.”

Ezra concluded: “As the year progresses I anticipate that some attractive opportunities, particularly in the regions outside Central London and the South East, will emerge as more distressed assets are released into the market in the second half of the year.”