Asian Investors Reignite Interest in Central London Office Market
Central London investment volumes totaled £1.65bn in Q1 2023, according to provisional data from global real estate advisor, CBRE. The £1.65bn of volume is more than double that seen in Q4 2022, the lowest levels of investment activity on record set against a backdrop of rising inflation and interest rate hikes. Whilst volumes remain around half the quarterly 10-year average, Q1 2023 may signal the start of a recovery in volumes.
The investment market was dominated by Asian capital in the first quarter, which made up 74% of all purchasing activity and 100% of activity over £85m. Deals included the purchase of St Katherine Docks by CDL, GIC’s £1bn joint venture partnership at Tribeca in Kings Cross, Obayashi’s purchase of 60 Gracechurch Street and Gamuda’s acquisition of Winchester House, a new Malaysian entrant to the office market, forming a joint venture with Castleforge.
Ed Bradley, Head of London Capital Markets, CBRE commented: “Following a sharp repricing of Office values in Q4 2022, we are once again seeing significant interest from Asian investors, both from established groups as well as new entrants. We are expecting Asian investors to lead the rebound in investment volumes, attracted by the long-term fundamentals and relative strength of the occupier market compared with other global office markets.”
According to the preliminary data, the first quarter also saw a return of larger deals, which were largely absent from the market in recent months. In Q1 2023, £100m+ transactions made up 68% of the total market. Interestingly, all acquisitions were made by equity buyers amid ongoing constraints in the debt market.
“Despite higher interest rates creating challenges in the debt market, investment volumes have been sustained by equity, thanks to the diversity of the buyer pool in London. As liquidity returns to the debt market and business and consumer confidence rebound, we should see volumes in lot sizes over £100m increase,” added Bradley. “We are starting to witness a greater degree of pragmatism around pricing from vendors, especially those with equity calls or refinancing events on the horizon, which will also support investment activity moving forwards.”