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Increase In Investment In Central London Commercial Property
19 Apr, 2011, London
Investment in central London commercial property in Q1 2011 increased by around 34% year-on-year, in an encouraging sign for the capital, according to figures from global property consultant Cushman & Wakefield. Total transactions across the capital for the first quarter totalled around £2.19bn compared to £1.63bn in Q1 2010.
However, this represented a decrease of 24% from the previous quarter (£2.92bn), as a shortage of stock hampered performance. This was the first quarter showing a fall, following six consecutive quarters of increasing investment. Total transactions for 2010 in central London totaled around £9.9bn, an increase of one-third on that for 2009 (£6.6bn). The amount of investment still falls a long way short, though, of that achieved during the property boom of a few years ago (2007: £19.42bn; 2006: £14.49bn; 2005: £15.25bn).
From the figures, the City investment market appears to have been extremely active, with a turnover of £1.6bn and 24 transactions. However, these are heavily skewed by the final exchange and completion of approximately five major 2010 transactions, amounting to in excess of £1bn. These include several acquisitions: the Goldman Sachs building, River Court House, Fleet Street by Joseph Lau for £280m; Freshfield’s HQ building, 65 Fleet Street by the Malaysian Pension Fund for £148m; and the Rolls Building, Fetter Lane by Legal & General for £300m.
West End completed transactions totalled approximately £600m in Q1 2011. This is significantly down the same period in 2010 (£1.06bn) and also on Q4 2010 (£1.5bn). However, these figures do not take into account the circa £850m of transactions where contracts have exchanged in Q1 and are likely to complete in Q2. Notable acquisitions include: Belgrave House by Teachers for £108m, Savoy Court by USS for £45.40m and 10 Old Bond Street by a private investor for £43.75m.
Overseas investors continue to lead the market, accounting for over 53% of deals in the City, and over 55% of deals in the West End, in Q1. Inclusive of exchanged transactions, the West End figure increases to over 65%. In the City, the majority of sales came from UK funds (51.9%). Domestically, the UK funds and PropCos continue to be active, albeit on a selective basis, and account for approximately 33% of the West End market over the first quarter.
In the City, the market remains polarised between very large investment opportunities of which there are a number – approximately £2bn worth in four buildings – and much smaller opportunities. The total current availability in the City is around £2.8bn amongst 34 opportunities.
Underlying this large investment product, the remaining stock is largely made up of short income stream refurbishment and/or redevelopment opportunities for which there has been extraordinary investor appetite. The best example being Centurion House, Monument Street, where around 50 viewings took place in a three-week period with a sale to Rockspring at circa £22m.
In the West End, demand for good quality investments remains strong. The retail sector is in particular demand with overseas buyers generally at the head of the queue, but with some institutional interest for lot sizes under £50m. Offices are also in demand, especially those with active management opportunities.
Bill Tyser, head of City investment at Cushman & Wakefield said: “There remains a heavy weighting of international money-seeking opportunities in the market and a sweet spot remains for standing investments of between £50 - £150m. Whilst the demand for very large investments is less, it is still active and is a reflection of the international view of London as a relatively stable market against the geo-political unrest and natural disasters experienced in recent months. The outlook for Q2 remains strong, albeit for the City the number of acquisition opportunities remains relatively narrow and dominated by large lot sized investments.”
Clive Bull, head of central London investment at Cushman & Wakefield said: "Central London commercial property remains a mature, transparent and liquid market. Demand remains strong from both domestic and overseas investors as London continues to be perceived as a relatively safe haven for investment, especially in recent events around the world. With sterling still weak and an increase in stock likely with banks off-loading assets, we are confident that 2011 will see volumes rise."
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