Investment in London commercial property falls again

15 Jan, 2009, London

Investment in Central London commercial property fell 65% in 2008 to £6.8 billion down from 2007’s record figure of £19.4 billion.

According to global real estate adviser Cushman & Wakefield’s latest figures, £3.4 billion was invested over the year into the important West End market which includes Mayfair and Victoria. This was a fall of 41% on 2007’s total of £5.8 billion. In the last quarter private investors with equity dominated activity investing £67.8 million.

In the City & Docklands market, investment fell markedly more. 2008’s year end total was £3.4 billion down a steep 75% from 2007’s total of £13.6 billion.

Clive Bull, head of Central London investment, Cushman & Wakefield, said: “The final quarter of the year has seen a total of £209 million transactions completed in London’s West End – a market which has traditionally shown most resilience to swings in the market. This figure compares with £690 million for the previous quarter and £1.325 billion for the same quarter in 2007. These figures are significant and clearly reflect a continuing slow down in investment activity in a quarter which traditionally is characterised by a significant amount of end of year activity. The deals that have been completed include the purchase of 1 Old Bond Street, reflecting a yield of approximately 3.55% and 160 Piccadilly at a yield of approximately 4%. The majority of the transactions have been carried out by private investors using a high proportion of equity given the continuing lack of debt available.

“Toward the end of the quarter we saw signs of opportunity funds from both the UK and overseas taking a much closer look at the West End market as yields continue to move out. Currently there are a number of high profile buildings in the West End under offer although not, as yet, exchanged or completed."

Bill Tyser, head of City investment, Cushman & Wakefield, said: “Investment into the City and Docklands market of around £3.4 billion reflects something in the order of 25% of the turnover achieved in the year ending 2007 and more akin to the level of turnover achieved at the beginning of this decade. Of this turnover, around one quarter has been transacted by German funds, who, for the time being, have largely drawn back from the market since September. Investment in the last quarter of the year of £502 million was similar to the third quarter’s total of £554 million although JP Morgan’s £237 million acquisition of Riverside South in Canary Wharf for its own occupation somewhat flatters the Q4 total.

“The positive news is that despite the lack of available credit from banks, yields, especially for short-dated income stream stock, have reacted sharply in Q4. There are a number of properties in this category where yields approaching 10% can be considered and clearly the yield premium to gilts and equities combined with low returns on cash, could produce a more buoyant and active 2009 than we have experienced during 2008, so long as the stock is available and the risk for further rent reductions are accounted for.”

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