Rise In London Commercial Property Investment As Overseas Investors Flock To The Capital
4 Jan, 2011, London
Central London commercial property investment transactions for 2010 totalled around £9.9 bn, an increase of one-third on that for 2009 (£6.6 bn), in an encouraging sign for the economy, according to Cushman & Wakefield. Overseas investors continued to dominate the market, accounting for two-thirds (around 66%) of deals in Q4 and over the year as a whole, and for in excess of 70% of transactions in the City.
Investment volumes for the capital rose for the fifth consecutive quarter in Q3 2010 with £2.85 bn transacted, up from £2.78 bn in Q2. The most recent quarter saw transactions dip to £2.66 bn. The amount of investment still falls a long way short, however, of that achieved during the property boom of a few years ago (volumes for the last five years: 2009: £6.6bn; 2008: £6.99bn; 2007: £19.42 bn; 2006: £14.49 bn; 2005: £15.25 bn).
In the City, £1.36 bn-worth of transactions took place in Q4 2010. Major deals included the sale of Drapers Gardens to Evans Randall for £242.5 m and Bishops Square to JP Morgan for £557 m. This figure excludes the purchase by JP Morgan of its new headquarters building at 25 Bank Street for just under £500 million and 60 Victoria Embankment from Carlyle for an undisclosed sum but likely approaching £200 million. In addition a further 22 transactions were under offer at the year-end, amounting to a further £970 million approximately.
Of these, the proposed purchases by Legal & General of Rolls Building’s 110 Fetter Lane for some £300 million and 10 Aldermanbury Square by ING for the Malaysian fund for around £225 million account for the majority of these prospective transactions. Despite a prodigious amount of activity in the final quarter of 2010, the amount of volumes was still down from £1.85 bn in Q4 2009 and a slide from £1.63 bn the previous quarter.
West End volumes totalled almost £1.3 bn in Q4 2010, a 4% increase on the same period in 2009 and marginally up on the previous quarter - £1.22 bn in Q3 2010. Key transactions in 2010 included the sale of Burlington Arcade to Meyer Bergman/ Thor Equities for £104 m, and the sale of 40 Portman Square to the Malaysian Employees Pension Fund for £181 m.
Central London commercial property remains a mature, transparent and liquid market. Strong rental growth predictions, the City’s position as a leading international financial centre, and the resilience of prime assets as secure income-producing assets all make it very attractive to investors. Domestically, the UK funds and PropCos continue to be active, albeit on a selective basis, accounting for around 26% of the year’s deals.
Bill Tyser, head of City investment at Cushman & Wakefield said: “2010 went out with ‘a bang’ with the total amount of completed transactions in the City standing at around £4.7 bn, in line with the out-turn for 2009, if Blackstone’s acquisition of Broadgate is included for that year. However, the number of deals increased dramatically, with 86 transactions for 2010 against 60 in 2009. With the squeeze on supply of good quality investment stock, the outlook remains strong for further international activity during 2011 and we expect to see further improvements in prime headline rental growth.”
Clive Bull, head of central London investment at Cushman & Wakefield said: "Demand remains strong from both domestic and overseas investors as London continues to be perceived as a relatively safe haven for investment. The annual total for 2010 is well up on that of 2009, though nowhere close to the volume average of over £16bn of the buoyant market during 2005-2007.With sterling still weak and an increase in stock likely with banks off-loading assets, we are confident that 2011 will see volumes continue to rise."