LR REENERGISING DEMAND

2020 Knight Frank Global Capital Tracker: investment into London

One of the challenges for London’s commercial investment market last year was a lack of assets for sale. This combined with nervousness around the Brexit proceedings in Westminster meant some investors moved into a holding pattern; however with the veil of political uncertainty lifted, investment appetite is expected to rise.     
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Categories: London Report LR Reenergising Demand
  • London clocked up over £4.6bn of office investment deals in the last quarter – more than Q2 and Q3 2019 combined
  • 2020 looks set to be a bumper year, with our Global Capital Tracker suggesting some £48.4bn is waiting in the wings around the world for deployment into London’s office market
  • 50% of the demand for office assets is from the Asia-Pacific region

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"2020 looks set to be a bumper year, with our Global Capital Tracker suggesting some £48.4bn is waiting in the wings around the world for deployment into London’s office market."

So, demand will be strong, but where will the supply come from?

We’ve identified a handful of possible sources:

Chinese owners

The Chinese government’s cooling measures on corporate debt could lead to difficulties with refinancing – we’ve already witnessed a few of these sales last year.

JV opportunities

Given high levels of overseas investment over the past few years, there will be a number of these owners facing the prospect of voids due to the need for imminent asset management to cater to the changing nature of changing customer expectations.

Development completions

There is 7.8 million sq ft of space due to complete during the course of this year across 54 buildings, 54% of which is already pre-let. These are prime sales assets and we expect to see more forward purchasing as we go through 2020 in response to frustrations over the lack of completed investments available.

Currency

If Sterling appreciates as Brexit progresses, then we expect some overseas investors to profit take.

There is growing demand for London assets, particularly whilst it looks so cheap compared to other global cities, but the biggest challenge will be the dearth of stock to purchase. This suggests another year in which there is likely to be increased appetite for refurbishment opportunities.

Separately, our forecasts show growth of 20% in prime headline rents in the City core by the end of 2024, with the West End expected to see rental growth of almost 16% over the same period. These projections will only serve to strengthen investor appetite for London assets.