OVERSEAS CAPITAL CONTINUES TO DRIVE CENTRAL LONDON INVESTMENT
Continuing a trend seen for the past 18 quarters, overseas investment made up the majority of Central London office investment transactions in Q1 2018, according to global real estate advisor, CBRE. Overseas buyers were behind 79% of deals in the first quarter of the year and have accounted for more than 83% of all transactions over the last 12 months, the highest percentage on record.
Asian investors were once again the most active within the market, making up 52% of all transactions in Q1 2018. A total of £1.3 billion was acquired by Asian investors during the first quarter, led by £718 million of purchases by Hong Kong based investors. South Korean investors are also becoming increasingly prominent, committing £248 million to the capital in Q1 2018.
The City and Midtown saw the highest share of investment turnover in Q1 2018. £1.1 billion transacted in the City, including three deals over £100 million, and Midtown saw £892 million transact, the second highest level of investment in this sub-market for a first quarter on record. This included one of the largest transactions of the quarter, the £303 million sale of Regents Quarter in King’s Cross to Hong Kong based investor Nan Fung and the circa £200 million sale of 90 High Holborn to Israeli investor, Teddy Sagi.
Despite continued demand from overseas capital, investment into Central London offices has slowed over the last three months and investment volumes for the quarter totaled £2.5 billion. This represents a 29% decrease on the previous quarter and a 50% decline on the exceptionally strong Q1 2017. The primary cause is a reduction in the number of large transactions; there were seven deals over £100 million in Q1 2018 compared to 13 in Q1 2017, which included the £1.15 billion purchase of The Leadenhall Building (commonly known as the Cheesegrater).
We have seen a strengthening of sterling in recent months and so the comparative pricing advantage London offered in the months following the referendum has lessened. Demand from overseas investors remains exceptionally strong, but as you might expect from this stage in the cycle, investors are focusing on pricing and yields and some investors are seeking to hold income in the short term resulting in lower levels of new stock coming to the market. Whilst prime yields remain below levels recorded at previous peaks of the market, the sector remains favorably priced when compared to other asset classes and with a global hunt for income, the London market continues to be a major draw for global investors.