Investment in London commercial property reaches £17bn
Investors will have spent just under £17 billion on office blocks in central London in 2016, a decline of around 15% on the year before, Savills has predicted.
The property consultant said that investment turnover for central London office buildings during 2016 will be around £16.8 billion, on the assumption that around £3.9 billion currently under offer will either exchange or complete by the end of the week.
While the investment spend in 2016 will be down on last year, it will be 20% above the long-term average, Savills said. The market was helped by active overseas investors, in particular Asian buyers, who benefited from the fall in the pound after the Brexit vote on June 23, it said.
Asian investors spent £4.5 billion on central London offices up to the end of November. This accounted for one third of total turnover for 2016 – the greatest market share on record.
Rasheed Hassan, head of cross-border investment at Savills, said that a combination of easing prices and the weakness of sterling following the EU referendum encouraged a flow of international money into London “with an effective discount of 10-15% on entry prices for investors whose currency is pegged to the US dollar.”
He added: “Pricing overall has been easing off its high water mark since June 2015 and with [sterling’s fall] combined we have never seen such a level of interest in London from Asian investors, particularly those from Hong Kong, as we do today.”
In the City market, Asian investors have accounted for 54% of activity since the EU referendum, Savills said.
Savills says prime yields have moved out by 25 basis points this year in both The City and West End markets, as values have fallen. The yield for a prime office building in the City at the end of 2016 was 4.25%; in the West End it was 3.25%.