Central London office investment retains global appeal
As the government scrambles to find an amicable EU exit solution before the 29 March deadline, UK commercial property investment volumes have remained resilient, with Central London offices ending 2018 with a total of £16.30 bn worth of deals.
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This mirrors the volume of transactions registered in 2017 and is above the long-term average of £14.23 bn.
The steadfast investment volumes reflect our view that much of the Brexit risk has already been priced into the market, which has remained resilient in light of both the shock 2016 Brexit referendum result and the political turmoil that has ensued since.
While some investor groups are taking a wait and see approach, there are others who are capitalising on sterling’s weakness. The source of investment funds continues to remain diverse, with investors from the Far East (£4.19 bn) and Greater China (£3.48 bn) topping the league table.
Interestingly, European investors were the fourth biggest investors in Central London offices last year, investing £2.55 bn, apparently unphased by the Brexit crunch talks, perhaps signalling an opportunity to secure a ‘good deal’ prior to the expected UK departure from the EU in a few weeks’ time. Secure long-term income generating assets, with inflation linked rent increases remain highly sought by this group.
"Overall investment volumes into Central London offices are stable, but the source of funds is ever shifting. European institutions appear to be capitalising on the weakness of sterling. 2018 saw £2.55 bn committed; the third highest level from Europe ever recorded. Brexit appears to be a non-issue and they also seem to be sensing a pre-Brexit deal advantage."
_Faisal Durrani, Central London Research,
Sterling appeal
Clearly, the weakness of sterling since the Brexit referendum has aided the appeal of commercial property investment amongst the international cohort.
In fact, compared to pricing during the last true market peak in Q1 2015, buyers of West End offices from Japan (31.2%), the EU (27.8%) and Thailand (26.2%) will find West End offices to be about a third cheaper compared to three years ago.
Conversely of course, for those who purchased offices in the West End in these currencies in Q1 2015, the incentive to sell would be low as in local currency terms, these assets would have depreciated by about a third over the last three years.
Looking back further still to the pre Great Recession peak in Q2 2007, West End office purchasers from China and Singapore are looking at an even larger currency discount of 34.8%, while for Indian buyers, West End offices would be 26% more expensive.
Read more in the latest Central London Quarterly Report Q4 2018
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