A review of London’s commercial investment landscape in 2019
It will be no surprise to most that London’s annual investment turnover was down 15% last year and 8% below the long-term average. However, Q4 certainly made up for it.
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- The source of capital into London is constantly evolving
- We expect rising interest from investors in Hong Kong, Singapore and South Korea, in addition to persistent demand from Europe and North America
- Renewed downward pressure on yields could alleviate the current shortage of available investment opportunities
Return of the UK investor
In 2019, we saw the return of the domestic investor, accounting for a quarter of all deals by value and half of deals by number. We witnessed the value add and opportunistic markets becoming more competitive than core income - off the back of occupational market strength - with many domestic and private equity investors chasing occupational risk.
Over the last few years, domestic purchasers have been notable for their relative absence, accounting for just 17% of transactions by volume in 2018. Unlike overseas investors, they have not benefited from a pricing advantage as Sterling has fallen.
Turnover not reflective of underlying demand
Investment turnover was down 15% last year and 8% below the long-term average. However, Q4 certainly made up for it - where we saw the largest Q4 volume traded since 2015 and this included 14 deals over £100m.
Turnover volumes, however, are simply not reflective of the weight of investor demand we saw on the ground, hindered by an acute lack of supply. And 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.
"Our view is that the combination of a macro reweighting towards real estate generally, combined with this current mix of London-specific advantages, will foster a rebound in demand for London assets"
2020 - a bumper year awaits
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
The overseas core buyer did return in strength towards the end of the year, resulting in a flurry of income deals, hardening pricing and a very busy run up to year-end.
For overseas buyers, the lack of a strong Sterling bounce has further anchored pricing at attractive levels, albeit some currency volatility can be expected this year as the UK works to carve out a new trading relationship with the EU.
Our view is that the combination of a macro reweighting towards real estate generally, combined with this current mix of London-specific advantages, will foster a rebound in demand for London assets. The implications for pricing are clear: renewed downward pressure on yields, which could alleviate the current shortage of available investment opportunities.
Political stasis ends
Looking ahead, London’s position as one of the world’s most liquid and transparent real estate markets will remain alluring for global and domestic investors alike. We expect to see a marked increase in overseas investment activity in 2020, as political uncertainties are put to rest with the UK finally Brexiting on January 31st after three years of political stasis.
We feel this, combined with the recent UK General Election result, will be instrumental in unlocking pent up demand as many investors have been waiting for greater political clarity before committing to London.
