Despite the bounce in optimism spurred by the lifting of lockdown restrictions in September, the total transaction volume for 2020 was £2.49bn of exchanged or completed deals, reflecting a 30% drop against the 5-year average of £3.58bn. The number of transactions was unsurprisingly down, with some 96 deals recorded in 2020 (compared with 159 in 2019), and the year was ‘book-ended’ with 72% of deals transacted in Q1 and Q4.
Overseas investors were the most dominant purchaser type in 2020 accounting for 46% of transactional volumes, including the high-profile acquisitions of White City Place, Arlington Business Park – Theale, Building 7 – Chiswick Park and Bourne Business Park – Weybridge. This trend is expected to continue into 2021 given Brexit certainty, weaker sterling and compelling returns relative to other international markets.
UK institutions were the most active vendor type accounting for 38% of total sales in 2020, which was largely due to the UK PAIFs’ reaction to heavy investor outflows. Investor reaction to the FCA notice period proposals will partly shape if this trend will continue.
The autumn of 2020 marked a notable turning point for investors as lockdown restrictions reduced and helped rebuild investor confidence, which in turn bought liquidity and positive sentiment back to the market. A pent-up sales pipeline meant that over £1.3bn of stock was launched from September onwards. This resulted in the Q4 volume reaching £736m of completed deals with a further £707m under offer.
Clarity over the UK’s trading arrangement with the EU is welcome and will be a positive for the wider UK investment market. Two key themes now look set to shape the UK office market in 2021. First is around the timing of the wholesale return to the office, with current lockdown restrictions balanced against the speed of the vaccine roll-out. Secondly, offices will continue to be business-critical, but the impact of new occupier behavioural strategies on grey space volumes will be influential on both supply and rental levels. Both will be key catalysts for investor activity, which is likely to remain focused on the best locations, well-secured long-let assets, and, buildings with enhanced ESG credentials.