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Investment Brief - Winter 2020

The definitive guide to UK commercial property investment market


Executive Summary 

The pace of the initial economic recovery in early summer was strong after the initial lockdown measures were relaxed and GDP rose by 15.5% in Q3. But this figure masks a loss of momentum from August, and in September output was still more than 8% below its pre-pandemic level. Business survey data pointed to a further loss of momentum in October as local Covid-related restrictions became more stringent.

The second lockdown in England in November (with similar restrictions in other parts of the UK) and ongoing stricter tiering from December means that UK GDP is set to fall by nearly 3% in Q4 and the 2020 GDP forecast has been revised down to -11.3% (from -10.3%), before a recovery of +5.2% in 2021 (from +6.7%).

UK commercial property investment staged a small recovery in Q3 to £8.1bn, up from £4.3bn in Q2. The figures for the first three quarters of 2020 have been significantly bolstered by the Alternatives sector (notably Blackstone’s £4.4bn acquisition of the IQ Student Portfolio in Q1), without which just over £20bn was transacted – the most subdued since the financial crisis. There are disparities across property sectors, with retail and leisure investment volumes at record lows while the much more buoyant industrial segment notched up nearly £2bn in Q3 with a return of portfolio deals.

This mixed picture was also reflected in yield movement in Q3. Retail yields moved out further and capital values continued to tumble, notably for shopping centres. Office yields edged up but were broadly flat overall in Q3, after a shift out in Q2. But competition over industrial assets meant that yields actually sharpened in Q3, and higher frequency data show that capital growth intensified into the first month of Q4.

We expect All Property rents to fall 2.9% in 2020, and a further 0.7% in 2021 – driven by the tail end of the retail repricing and offset by more positive growth in industrial. Following similar sector dynamics there will be a 30bp outward yield shift in 2020 but we expect more investment stabilisation in 2021 industrial finishes its miniboom and retail losses are fully priced in.
This would generate total returns of -4.5% in 2020 (the first negative annual return since 2008) and +6.0% in 2021.


The investment market for industrial is currently active and liquid. Unlike other real estate segments, confidence in the underlying occupier market is high. Voids continue to be low and further rental growth is anticipated, especially in the South East. The investor buyer pool for multi-let widened in Q3 and portfolio deals made a significant return. With rents at all-time highs, capital values are back to their peak or beyond. Weakness in H1 will have caused a dip in the 2020 annual total return to +4.2% (the lowest since 2012), but industrial will easily outperform the other property segments. H2 positive rental growth and yield compression – particularly in London & the South East – is likely to be sustained into 2021 and drive an improved 7.9% annual total return.


Following record low activity in Q2, office investment increased by 54% to £2.3bn in Q3. Many of these were transactions that were under offer pre-covid. The buyer pool has shrunk, and – unlike Industrial – the extra due diligence process has increased the typical transaction time. This will help some investors be more selective in acquisitions, while others will put the onus on guaranteed income over building quality. High quality London offices with strong covenants are garnering the highest level of interest, notably from overseas buyers. Meanwhile demand for value-add stock across the UK has become increasingly careful and tentative. Our outlook for offices has improved, following lower than anticipated falls in rental growth this year. However, forecast annual total return will be negative, at -4.8% for 2020.


Retail investment increased in Q3, but remains severely depressed, especially for shopping centres. The small tick up was driven by increased investment activity in the less distressed sub-segments – namely retail warehouses, supermarkets and some portfolio deals. Retail rental growth fell into deeper negative territory in Q3, while anecdotal evidence suggests that late and non-payment of rents continues.

The outlook is poor, with store closures at the start of the critical Christmas trading period, the worsening economic backdrop and as shoppers shift increasingly online. Total return is forecast to be -17.8% in 2020 but will compare favourably with the other property segments again by 2022 with investment market stabilisation and a relatively high income return.

Whilst the retail sector is undergoing a structural re-pricing accelerated by Covid there are others, such as consumer-focused logistics and real estate supporting the digital world, that have actually benefitted from the pandemic. The market dislocation that we are witnessing will bring with it investment opportunities, and in a world of subdued returns those assets that best capitalise on these broad megatrends have the greatest alpha potential.

John Rodgers, Partner

Key Contacts

John Rodgers


Lloyd Davies


Steve Sharman


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