Real estate services company Jones Lang LaSalle said most of the direct investment activity was focused on central London offices, with a supply squeeze and aggressive bidding by overseas and other investors serving to push prices higher. Around half of the invested capital in the quarter was from overseas investors.
‘For the remainder of 2011 Jones Lang LaSalle expects to see further demand from a range of investors seeking prime assets in this core stable market,’ said Robert Stassen, JLL's head of EMEA capital markets research.
JLL also said the UK kept its spot as the largest market in EMEA, having some 38% of capital flows in the first quarter. But it added that a growing lack of available assets may slow transactional activity.
A rising shortage of new space combined with robust demand in the central London office market caused rents to rise sharply last year, even as most other occupier markets continued to struggle.
Separately, CB Richard Ellis said overseas investors were generating strong occupational demand for office space particularly in the banking and financial services, with more demand expected from the expanding technology and media sectors.
JLL also said it expects investment volumes in the UK and other western European countries to grow by less than 10% this year, against a projected 30% growth across EMEA as a whole.
And in its latest UK monthly index, IPD said that four consecutive months of overall UK commercial property market rental growth came to an end in March, albeit fractionally, despite all property reporting a modest upturn in capital growth, at 0.3%.
All property rents fell to -0.1%, and within these results office rents turned negative for the first time in four months due to a combination of lower growth in Central London, coupled with further levels of decline elsewhere in the office market.
Modest levels of capital growth across all sectors in March, amounting to 0.3%, 19 basis points higher than in February, were therefore entirely driven by yield movements, with yield impact at 0.4% for March, the index also showed.
‘Results are again showing mixed signals, with slightly improving capital growth entirely dependent on investor sentiment, while positions for rental values have weakened,’ said Phil Tily, managing director for UK and Ireland.
On a quarterly basis, capital growth increased marginally during the first three months of the year, by 0.6%, just ten basis points more than the 0.5% recorded in the fourth quarter of 2010. Rental values remained unchanged over the quarterly period, with growth again entirely dependent on yield adjustments.
‘The modest increase in capital values in March led to a 2.3% total return for quarter one, just a ten basis point increase on the 2.2% we saw in quarter four,’ added Tily.
