London office market ‘underpriced compared with European cities’
Central London’s office investment markets are underpriced in comparison with other major European cities according to Savills, after a return to leasing activity in the capital this year.
Most of Europe’s major cities for offices have edged into “fully priced” territory, researchers said, as rising capital allocations have continued to compress yields amid rising risk-free rates.
Meanwhile, London could experience yield compression in the future given its higher rental growth prospects and a current yield discount against the five-year average.
Central London’s office investment markets are underpriced in comparison with other major European cities according to Savills, after a return to leasing activity in the capital this year.
Most of Europe’s major cities for offices have edged into “fully priced” territory, researchers said, as rising capital allocations have continued to compress yields amid rising risk-free rates.
Meanwhile, London could experience yield compression in the future given its higher rental growth prospects and a current yield discount against the five-year average.
The agency said that in Europe, government bonds for prime offices yield spreads will recover to pre-pandemic levels once interest rate expectations normalist in the medium-to-longer term, with Capital Economics anticipating no Eurozone rate rise before 2025.
An increase in people returning to their offices post-pandemic has also boosted demand, researchers said.
Preliminary third quarter data for European markets shows take-up had increased 15% year-on-year by the end of the quarter, although still down 17% on the five-year average.
That has been primarily driven by professional and business services companies, making up 21%, and banking, insurance and finance firms, making up 18%, which remained the most dominant occupier sectors across the European markets in the first half of the year.
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