Commercial property investors are feeling more comfortable about current pricing as the gap between buyers and sellers is narrowing, according to new research.
Confidence remains elusive but there is an acknowledgement that the sector is starting to “find a level” that is more acceptable to the market.
A Q3 report from Lismore Real Estate Advisors says logistics and multi-let industrials remain stable, whilst offices remain the hardest sector to call with a divergence of opinion on future prospects and where true value lies.
Retail warehousing looks like offering good value and in the living sector, appetite remains robust, but the number of relevant transactions has been limited.
When looking at buyer activity, funds remain selective and quite opportunistic, with core-plus buyers starting to see some value in offices, leisure and retail warehousing where values have fallen to a level that debt can be accretive.
Stock selection remains paramount, and the patience shown by opportunistic buyers “looks like it will be rewarded in the not too distant future,” says the report.
Chris Macfarlane, director at Lismore, said: “While there are encouraging signs at a macro-level, with interest rates peaking, inflation easing and build costs plateauing, it still feels like there are some challenges ahead, particularly for those with historic debt, grappling with the prospect of more expensive re-financing.
“The market will settle and we are anticipating an improvement in investment volumes, as confidence improves over the next 12 months. The recovery is unlikely to be uniform across all sectors but multi-let industrials seem to have weathered the storm better than others and are well-placed to see improvement. It offers good letting prospects, is less capex hungry and a lack of new development all make for a compelling investment rationale.”
Recently Lismore investor research showed that more than two-thirds of respondents will be seeking buying opportunities in the multi-let industrial sector during Q4, with property companies and investment managers, with 69% and 88% being most positive.
With a number of larger transactions, Q3 was more positive than anticipated, with activity trading at £398m, which is up 17% on Q2 of 2022 and 8% below the five-year average. There is an increase in stock coming to the market and Lismore anticipates that Q4 volumes are likely to be lower than the five-year average.
The key transactions in the quarter included the £62.5m (7.8% yield) acquisition of Craigleith Retail Park, in Edinburgh by US investor, Realty Income from Nuveen.
Also in the capital, the prime mixed-use block, 40 Princes Street was bought by Remake Asset Management for £29.525m (7.5% yield) from Redevco.
Livingston Designer Outlet, Scotland’s largest outlet centre, was acquired by Global Mutual and Patron Capital for £57m (14% yield), whilst pension fund manager, Wesleyan, acquired a prime industrial asset let to Biffa at Eurocentral from Capreon for £6.74m (6.2% yield).