London Commercial Investment Strong in Q1

 LONDON—Central city investment activity totaled $6.54 billion (£4.26B) in Q1 2015, which is one of the strongest investment starts to a year, only marginally behind record Q1 2014 activity of $$6.61 billion (£4.3B) – according to research published this week by global real estate adviser Cushman & Wakefield.

“There is a huge emphasis on global capital coming into London and this is set to continue throughout the remainder of 2015 and into next year,” said James Beckham the firm's head of London capital markets. “Occupational trends remain supportive, with low vacancy rates, strong tenant demand and, because supply is limited in the short term, we're predicting rental growth for the next three or four years. Coupled with the fact international investors want to come into a sterling-based real estate asset, as many want to avoid the current Eurozone uncertainty, London's appeal grows ever stronger.

“Asian investors have extremely high saving rates, and they are now applying those through their life companies into international markets, Beckham added. “The first port of call for this type of capital is of course London.”

The City of London investment market continues to perform very well and investment volumes stood at $5.2 billion (£3.4B), which is some 42% ahead of the five-year average.  In contrast, West End volumes stood at $1.32 billion (£864M) – only half of the five-year average volume level – and reflects the lack of investment stock coming forward in the West End. 

Volumes in city were on a par with Q1 2014, while West End volumes were 7% down, albeit volumes in the West End were supported by a few very large transactions compared to Q1 2014.  The number of investment deals completed in Q1 stood at 70, of which just 15 were in the West End.  Of these, there were three transactions in excess of $153.4 million (£100M) in the West End, compared to none in the equivalent period in 2014.  The City investment market was fueled by transactions between $78 million (£50M) and $153.4 million (£100M), but with limited stock coming through at this level, this was reflected in above asking prices being achieved – approximately 13% ahead of asking. 

The Clerkenwell & Shoreditch, Aldgate & Whitechapel and Southbank submarkets accounted for 28% of central London transactions by number, which is up from 11% a year ago, while a number of buildings in west London were brought to the market this quarter and are already under offer.

The pressure to invest is clearly mounting for many players and the market is growing ever more competitive, with allocations to real estate continuing to increase and new buyers still emerging.  Overseas investors accounted for 65% of Central London investment volumes, which was the lowest proportion since Q3 2013.  This was due to an uplift in activity from UK funds, which accounted for just under 20% of investment allocations in Q1 – up from 12% a year ago combined with a lack of overseas activity for smaller lots in the West End. 

North American and Asian investors were positive investors across Central London during the quarter, while European investors were the main disposers across the capital – primarily driven by German investors offloading some significant property holdings in the City market.  Last quarter investors from China and Hong Kong were the most active net investors in Central London, but with a focus on the City office market.