Specialist property investment on track for record year

Analysis by Knight Frank shows that the UK’s specialist property sector is going from strength to strength, with investment values and activity continuing on an upward trend.

Based on the current strength of investor demand and the pipeline of deals expected to complete in H2, the full-year figure is likely to exceed our original forecast of £10bn by a significant margin – and may possibly reach as high as £12bn – the highest on record.  Specialist property investment volumes reached nearly £6bn in the first half of this year.

The various specialist sectors – hotels, healthcare, automotive and student property – are all experiencing strong investor demand, as the asset class becomes increasingly part of the mainstream property universe.

Transaction volumes for student property reached £3.5bn in H1 and should exceed £5bn for the full year.  There is a shortage of good quality assets which has prompted prime yields to harden to 4.5 per cent, with increasing pressure on pricing for secondary stock.

In the hotels sector, the investment market remains buoyant, with virtually every corner of the market attracting attention and equity.  The next six months will see a continuation of the current supply demand imbalance, which would lead to further yield compression, albeit focused on selective parts of the market.

Healthcare meanwhile saw around £500m of transactions in H1, with Knight Frank advising on £300m worth of deals.   Demand for quality assets continues to outstrip supply – for both fixed income and going concerns – and transaction volumes for the year should easily exceed £1bn.

The automotive market remains buoyant, with dealers and manufacturers continuing to enjoy high levels of profitability and the UK outperforming other main European economies. The majority of mainstream institutional funds now hold UK dealership assets and many are targeting further investment throughout H2 2015. With significant equity looking to be deployed in the sector, alongside a shortage of stock, values will remain strong.

Shaun Roy, Partner, Specialist Property Investment, Knight Frank, said; “Specialist property is attractive to many investors and there are a number of common threads across the various sub-sectors, not least the strong alignment with residential, the opportunity to diversify away from “traditional” property and the occupier-driven nature of the sector.  However, the key reason why we are seeing such an exceptional level of investor interest is the structural under-supply of high quality, purpose-built accommodation.  This is supported by buoyant demand from increasingly discerning occupiers.”