Central London investment to top £17bn in 2016

By Bridging Loan Directory 3rd January 2017

Central London’s office investment market has had another stellar year with total turnover for 2016 expected to reach more than £16.8 billion, 20 per cent ahead of the long term average (£14.4 billion), according to Savills.

2016’s total is just 15 per cent down on 2015, one of the strongest years on record (£19.4 billion) and includes includes £3.9 billion currently under offer expected to either exchange or complete before the end of the year.

Overseas investors have been particularly active, partly due to the currency shift following the EU referendum, says Savills, with Asian buyers, followed by those from Europe, driving the market. The firm reports that Asian investors deployed £4.5 billion into the Central London real estate market up to the end of November, accounting for one third of total turnover for 2016 – the greatest market share on record. In the City market, Asian investors have accounted for a noteworthy 85 per cent of activity since the EU referendum with a number of new entrants including Asian Growth Properties, who acquired 20 Moorgate for £155 million, and Kingboard Chemical Holdings who, advised by Savills, purchased Moor Place, 1 Fore Street for £271 million.

Savills says of the total turnover for 2016, £8.1 billion is expected to transact in the West End market while a total of £8.7 billion will be invested in the City. Key deals that have taken place include: City Point, 1 Ropemaker Place, EC2 purchased by Brookfield for £560 million; ENPAM buying a 50 per cent stake in Principle Place, EC2A for £382 million and China Life and Brookfield, advised by Savills, buying Aldgate Tower for £346 million.

Stephen Down, head of Central London investment at Savills, said:

“Central London’s office investment market has been on the world stage more than ever in the second half of 2016 and total turnover reflects the ongoing appetite for, what continues to be regarded as, a global gateway city. We remain realistic of course but with prime yields ranging between 3-6 per cent, commercial property continues to be an attractive asset class for investors.”

Rasheed Hassan, head of cross-border investment at Savills, added:

“The weakness of Sterling following the EU referendum has encouraged a flow of international money into London with an effective discount of 10-15 per cent on entry prices for investors whose currency is pegged to the US dollar. Pricing overall has been easing off its high water mark since June 2015 and with these factors combined we have never seen such a level of interest in London from Asian investors, particularly those from Hong Kong, as we do today. Market dynamics have also triggered some overseas investors, who have waited in the wings for years, to decide that now is the time to buy in London.”

Compared to 2015, Savills says prime yields have moved out by 25bps this year in both The City and West End markets to end the year at 4.25 per cent and 3.25 per cent respectively