UK investors dominate the City but there is a shortage of stock
8 Apr, 2010, London
Investment in the central London commercial property market fell by almost 50 per cent in the first three months of the year as a shortage of stock hampered performance. New figures from global property adviser Cushman & Wakefield show that £1.63 bn was invested across the City of London, Docklands and West End; it was the first quarterly fall after three consecutive quarterly increases. Investment in Q4 2009 was £3.096 bn
The Q1 figure compares well however with the first quarter in 2009 when only £679 m was invested. The market peaked in Q1 2007 when £3.939 bn was invested. Cushman & Wakefield says that the outlook for Q2 is considerably healthier with a number of key properties already under offer and over £2 bn of property now available on the market in the City alone. In addition, the White Tower Portfolio, effectively made up of four packages across central London, amounts to approximately £885 million, and is expected to formally come to market any day now.
Although investment in the City fell by 70 per cent on Q4 2009, it was characterised by the return of the UK investor following a year when international investors, buoyed by the weakness of sterling, swooped for the majority of prime assets for sale. Their dominance peaked at the end of last year when they accounted for 90 per cent of purchases across the City & Docklands. UK investors accounted for 60 per cent or £365 m of City & Docklands investment in Q1 against £196 m from overseas. £566.33 m was invested in the City & Docklands in total.
Bill Tyser, head of City investment, Cushman & Wakefield, said: “The start of the year was marked by a distinct shortage of opportunities but toward the end of March the number of investment opportunities has increased substantially. There is now £2 billion worth of properties available in the market providing a range of risk and reward returns. Key deals have been the acquisition of 100 New Bridge Street for £110 million, reflecting a 6.15% yield, by the German fund HIH from DEGI, and the acquisition by Delancey of 40 Holborn Viaduct for £90 million. The market has a real test in Q2 with four buildings each priced in excess of £200 million with yields in the region of 5.5%. These include Drapers Gardens, Watermark Place and 10 Aldermanbury Square.”
The West End market enjoyed a relatively robust first quarter to the year with over £1 bn invested down from £1.2 bn in Q4 2009. Compared to the corresponding first quarter of 2009, when only £200 m was invested, it is a 400 per cent increase in performance.
Clive Bull, head of central London investment, C&W: “As the quarter has progressed, we have seen an increasing amount of stock coming to market as owners look to take advantage of the appetite for prime West End Assets although some perhaps have a cautionary eye to the economic landscape post election. Notable deals have included the acquisition of 43-45 Portman Square by SEB, for a figure in excess of £100 million, plus the purchase of Victoria House on Southampton Row by an overseas investor for a figure believed to be around £170 million. Prime offices and retail are both top of most buyers’ shopping lists and already in Q2 there is a significant amount of stock under offer plus some major sales being launched which will test continuity of the strong market enjoyed so far.”