Strong Investment in London Property Confirms Capital as Leading Global City

12 Jul, 2010, London

£2.78bn worth of properties transacted in 59 deals in Q2 2010, a 94% increase year-on-year and a 70% increase on the previous quarter
Overseas investors continue to dominate the market, accounting for 60% of deals
London property viewed as safe haven for equity during economic uncertainty

Investment activity in London’s commercial property market is continuing at a high level, confirming its position as a leading global city in which to do business, according to new statistics from property adviser Cushman & Wakefield. Figures have risen for the fourth consecutive quarter with £2.78bn transacted in the key London markets of the West End, City and Docklands during Q2 2010. In a further boost for the market, on Friday it was announced that Mitsubishi Estate Company has sold Bow Bells House in the City for £140m to an overseas private investor in order to unlock funds for a new development drive in the capital.

To date this year, £4.45bn worth of property deals in central London have taken place – more than double that for the same period last year (£2.11bn). Strong rental growth predictions, sterling’s devaluation against the US dollar and the uncertain economic environment are all making London property, viewed as a mature, transparent and liquid market, attractive to overseas investors. Middle East and Asian investors are particularly active, as evidenced by the sale of the Knightsbridge estate to the Saudi Arabian Olayan Group – which makes up almost one third of West End investment in Q2.

The City & Docklands market saw £1.1bn worth of properties transacted in 22 deals during Q2 2010, this was a jump from £0.56bn in Q1 and a 57% increase year-on-year. There is also some £1.1bn worth under offer which is expected to complete in Q3. A surge in property on the market resulted in around £2.5bn worth being available early Q2 2010, ranging from risky short income stream investments to long term secure investments.

Investors comprised mainly of overseas purchasers with UK funds and property companies also active. The main sellers were international funds, particularly German funds. Key Q2 deals include:

30 Finsbury Square, sold by DEGI to MEAG - both German funds - at a yield of 5.58% and £102m
Governor’s House, 5 Laurence Pountney Hill, sold by German fund GLL to a private Greek investor, at a yield of 6% and £86m - this is the third time this property has been traded since the summer 2007

In the West End, 37 deals totalling £1.68bn worth of properties sold during Q2 2010 - an increase on £1.06bn in Q1 and a 95% increase year-on-year. Overseas investors accounted for the majority of deals, with prime retail assets top of their shopping list. There was some buying activity from UK funds, such as Aviva's purchase of 25 Soho Square but their appetite is becoming more selective as prices rise. Major Q2 deals include:

Knightsbridge Estate, sold by Avestus Capital Partners to the Olayan Group for circa £600m
2/16 Baker Street, sold by McAleer & Rushe to British Land for £30m, in a welcome return of speculative development
Acquisition of 56-62 Beauchamp Place and 321 Oxford Street, with these transactions reflecting low yields around 4%

Clive Bull, Head of Central London Investment, Cushman & Wakefield, said: “West End property is in high demand, particularly from the overseas investors. It is regarded as a relatively safe and stable home for equity in an uncertain economic environment where returns of other asset classes remain extremely low. Rents look set to climb, fuelled by occupier demand in the retail sector and a real lack of quality office supply.”

Bill Tyser, Head of City Investment, Cushman & Wakefield, said: “After a relatively slow start in Q1 with a lack of product in the market being chased by an eager investment community, Q2 witnessed a dramatic change in the availability of opportunities. It was widely felt, with the election at the start of the quarter and such distractions as the Greek sovereign debt crisis and the emergency budget towards the end, that investor sentiment would wane considerably both nationally and internationally. This has not happened and we are seeing a high level of activity.”

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