Central London’s office investment market has seen a strong 2016 with total turnover expected to reach more than £16.8 billion, some 20% ahead of the long term average.
The research from real estate firm Savills also shows that the 2016 total is likely to be only 15% down on 2015, one of the strongest years on record, with overseas investors having been particularly active.
Currency changes caused by the vote in June to leave the European Union encourage investment from overseas 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 biggest market share on record.
In the City market, overseas investors have accounted for a noteworthy 85% of activity since the EU referendum, with 54% carried out by Asian purchasers, with a number of new entrants including Asian Growth Properties and Kingboard Chemical Holdings.
Savills says of the total turnover for 2016, some £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.
‘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,’ said Stephen Down, head of central London investment at Savills.
‘We remain realistic of course but with prime yields ranging between 3-6%, commercial property continues to be an attractive asset class for investors,’ he added.
Rasheed Hassan, head of cross-border investment at Savills, explained that the weakness of Sterling following the EU referendum encouraged a flow of international money into London and this was effectively a discount of 10% to 15% 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,’ he pointed out.
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% and 3.25% respectively.
