Rallying against the ongoing economic and political uncertainties the UK faces, office investment volume in Central London in 2018 is expected to come close to £20bn, according to international real estate advisor Savills. Performance is in line with 2017 activity and comfortably ahead of the 10-year total annual average (£14.8bn).
London has witnessed notably above average levels of office take-up in 2018, Savills explains, and achieved the best ever City of London rent (£80 per sq ft).
The list of global businesses committing to long-term leases has continued to grow with announcements in the last 12 months from Facebook, LinkedIn and Sidley Austin amongst others. The constrained development pipeline has seen more office pre-lets over 50,000 sq ft agreed in 2018 than ever before and of late, Savills says, the shortage of available Grade A options has matured into more value-add/development opportunities trading. This has seen the return of UK real estate investment trusts (REITS) to the market, now the second biggest investor group in the city, and established global investors such as Brookfield and Tishman Speyer.
Stephen Down, head of central London investment at Savills, commented: “Commercial property investment volumes in London have exceeded expectation since the EU referendum as the city has remained the leading destination for global capital. Asian investors lead the way, and the pool of investor appetite has continued to spread to other parts of Asia, most notably in 2018 to South Korea, and elsewhere. The return of UK buyers and the appetite from global developers for London has enriched the argument that there is no better city to invest in the world today.”
Savills says the level of demand for London offices offers investors liquidity in the ability to buy and sell assets when other property sectors, such as retail, are struggling. Compared to similar cities in mainland Europe, London also appears good value with prime yields in the city (4.0%) and West End (3.25%).
Savills believes a greater number of value-add and development opportunities coming to the market and trading in London will ensure the ongoing creation of the world's best office buildings in a city where people will continue to want to work. This creates new investment opportunities for global investors searching for prime assets.
Rasheed Hassan, head of the cross-border investment team at Savills comments: “ There is an appetite from across the globe for London. Looking ahead, the correlation between the UK’s yields, currency and interest rates will remain a key driver to London’s investment market. Given where sterling is today we are seeing increased enquiries from our private investor clients in particular, who seem poised to invest in 2019. We believe that once there is more clarity on the direction of Brexit there will be more activity from many and would highlight there being a particular pent-up demand from mainland European investors, who have been cautious. We are seeing demand for assets across the risk spectrum from core income to development projects.”
Savills concludes that while we continue to operate in uncertain times the full health of London’s offices market should be able to absorb most shocks felt in the run up to Brexit and thereafter.
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