Surge in London commercial property investment from overseas buyers

1 Jul, 2009, London

Investment in London commercial property has risen for the first time since Q2 2007 according to new figures from Cushman & Wakefield. Its statistics for Q2 2009 show that £1.433 bn was invested in central London’s main West End and City & Docklands markets, an increase of over 110% on Q1’s figure of £679m.

The central London property investment market is likely to be among the first to recover in Europe and the increase in activity is further evidence that overseas investors see value with yields at an historic high. Cushman & Wakefield’s forthcoming monthly yield report will also show that weight of money is now putting some pressure on prime yields in the City of London.

The biggest increase in activity was in the West End market with £733m invested; an increase of over 250% on Q1’s figure of £207m. It is still below Q2 2008’s total of £928m. The average lot size was £23.6m up from £14.7m in Q1. Overseas private buyers dominated with 38% of purchases with overseas funds accounting for a further 22%. Notable deals included 2-4 Triton Square, N1 which was purchased by the tenant Abbey for £115m and Belvedere House at 27 Knightsbridge which attracted fierce bidding from overseas investors and was eventually sold for £59.5m to a private overseas buyer.

Clive Bull, head of central London investment and partner in Cushman & Wakefield's London Group said: “The most significant observation is the dominance of the overseas investor. Over 60% of West End transactions have been completed by overseas funds or private organisations. Their interest has been fuelled by a perception that the London market represents relatively good value, the continuing weakness of the pound and the lack of competition from the traditional UK/Irish debt buyers. The question exercising the minds of many investors, however, is whether this activity is the start of the recovery or some kind of false dawn. There is encouraging evidence that it is the former with a further £275m of stock under offer in the West End and £167m of deals which have exchanged but yet to complete.”

The single biggest transaction in central London was in the City with the purchase of a 75% stake in Hammerson’s Bishops Square development for £440m (at a 7.3% yield) by the Oman Investment Authority. This purchase made up the bulk of the City’s Q2 total of £700m although a further £616m of deals are currently under offer but yet to complete. Q2’s figure was an increase of 48% on Q1’s figure of £472m.

Perhaps the most significant City deal which has exchanged but is yet to complete is the sale of Friary Court, 65 Crutched Friars, EC3 for around £42m. Throughout 2008 this building could not sell at a 7.5% yield but it’s now exchanged at an 6.8% yield. Evidence that prime City of London yields are now the first to harden.

Bill Tyser, head of City investment and partner in Cushman & Wakefield's London Group said: “The market continues to be fundamentally two tier with the majority of activity focussed at the prime end (with inherently risk averse assets). Investment is being driven by Euro denominated funds including German, French and Italian sources. The remainder of the activity, in the more secondary end of the market continues to be frustrated by the lack of suitable finance for riskier assets. That is not to say there is no activity, however it is proving to be slow. The level of interest and activity from Europe has increased during Q2, driven by a relatively weak pound and the general perception that yields across London are now at a high coupled with historically low interest rates.”

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