INVESTMENT IN LONDON OFFICES DEFIES EU JITTERS IN FIRST QUARTER
Global capital investment into London’s office market remained strong in the traditionally subdued first quarter, with a total of £3.5 billion invested in the first three months of the year, according to CBRE, the world’s leading global real estate advisor.
Total investment volumes were down 14% in Q1 following a particularly strong end to 2015, but remained on a par with the first quarter of last year. Following this strong start to 2016, CBRE projects investment volumes will be more subdued in Q2, as some investors delay decision-making in the run up to June’s EU referendum, but expects volumes will rebound in the second half of the year, as long as Britain remains in the EU
There were 43 transactions in Q1, the lowest number since 2010, but the highest number of large deals above £100 million in value in any comparable quarter since CBRE records began in 1985.
The market continues to be dominated by international investors, who were involved in 67% of all transactions, down from 71% in Q4 2015. Overseas buyers accounted for more than £2.4 billion of investment, with many taking advantage of the weak pound and lower competition over prime locations. In March, London retained its status as the most popular EMEA destination in CBRE’s Investor Intentions Survey.
Stock levels in London rose by £1.4billion to £4.8billion at the end of Q1. Prime yields remained flat at 4.3% across Central London, and prevailed at record low levels of 3.5% in the West End, and 4% in the City of London.
Some investors are experiencing a degree of political and economic uncertainty at the moment, so it’s heartening to report that this hasn’t caused much in the way of turbulence in the London office market in the first quarter of the year. Yields are stable, and the prevailing conditions are in some cases making investment at this time a more attractive prospect.
Nevertheless, we are already seeing some buyers hold off on deals until they know the result of June’s EU vote, so we expect to see Q2’s transaction volumes dip, before bouncing back in the second half of the year, provided Britain stays in the EU.