London office investment back to pre-Covid level

Central London office investment has shot back to pre-pandemic levels – and dealmakers are confident that volumes will surge this year despite Covid-19 concerns. Combined investment in central London offices during 2021 stood at £12.3bn, according to Cushman & Wakefield, far outstripping 2020 volumes and equalling 2019’s total. The agency recorded £8.95bn of office investment deals in 2020, implying a 37% increase last year as pandemic restrictions were lifted. The gains were mainly driven by a resurgence of activity in the City, where £7.4bn was transacted, an 88% increase on 2020’s £3.9bn. In the West End, the estimated volume of £4.8bn represents a 4% year-on-year increase on £4.6bn, the agency added. Martin Lay, co-head of London capital markets at C&W, said he expected that “a strong start to 2022” would push volumes to as much as £15bn this year. “Central London offices continue to represent a relative safe haven for investors seeking income in a low-interest rate environment, with property generally offering stronger returns than bonds or equities,” he told EG. Final-quarter surge The strong totals come despite a slow start to last year, when deals were hampered by uncertainty around Covid-19 lockdowns. Just £1.3bn was transacted in the first quarter of 2021 – a figure well below the five-year quarterly average turnover of £3.6bn. But as the year went on, volumes were bolstered by interest from US and European buyers. CBRE data showed that they made up 29% and 23% of turnover, respectively. Julian Sandbach, head of central London office markets at JLL, said European buyers had “recognised both London’s place on the global financial stage post-Brexit and the relative yield attraction that London offers compared with major European cities”. He added: “Increasingly we are seeing investors and developers wishing to acquire or create the highest-quality, most sustainable and amenity-rich assets, recognising that businesses will want to locate in offices which inspire, retain, attract and above all provide high wellbeing to their employees.” Travel trouble UK investors were behind 27% of deals by volume, while Asian investors accounted for 17%, according to CBRE. However, the spread of the Omicron variant of Covid-19 may yet temper the new year optimism, with several Asian countries bringing in fresh travel restrictions, which could affect investment. Earlier this week, Hong Kong banned passenger flights from the UK, in a move that will prevent potential buyers from travelling to property viewings in London. James Beckham, CBRE’s head of London investment, said he expected the market to “remain active” in spite of travel constraints. “Given the pent-up demand for income-producing assets, there will likely be a continuation of the momentum that has been building over the last couple of quarters into 2022,” he said. Stephen Down, head of central London investment at Savills, added: “While travel restrictions are still in place, having now had almost two full years’ experience of navigating these, many non-domestic buyers are prepared to do what it takes to get back into the market so they don’t miss out on bidding on key assets.” To send feedback, e-mail alex.daniel@eg.co.uk or tweet @alexmdaniel or @EGPropertyNews Photo by Frank Augstein/AP/Shutterstock Discover which agents transacted the most space in the London submarkets last year >>