Commercial property

Commercial property investment in London hits six-year high

Central London commercial property transactions totalled GBP19.9bn in 2013, the highest figure since 2007, according to figures released by Cushman & Wakefield.

This represents a 47 per cent increase on 2012's total of GBP13.5bn.
 
In the City & Docklands, total investment in Q4 2013 reached GBP5.6bn; this takes total investment for the area in 2013 to GBP11.9 bn.
 
From a purchaser perspective in Q4, overseas investors in the City & Docklands remain the most active accounting for 80 per cent of market share (GBP4.5bn) across 12 transactions.
 
However, this statistic is heavily weighted by the recent purchase of More London by Kuwaiti overseas sovereign fund St Martins (Kuwait Investment Authority) for GBP1.7bn and the acquisition of a 50 per cent stake in Broadgate by GIC, Singapore's sovereign wealth fund, also for GBP1 .7bn. These two transactions are the UK's largest ever commercial property deals.
 
The UK investor market in the City & Docklands was very active in Q4, with 26 purchaser transactions totalling GBP1 .1bn; this is 19 per cent of Q4 market volume with an average deal size of GBP42m.
 
Total investor volume is hugely reliant of a small number of very large deals such as More London, Broadgate and the St Botolph Building (GBP464m). The top five deals for Q4 2013 account for around 77 per cent of total City & Docklands investment.
 
Overseas-based vendors continue to be the most active accounting for 72 per cent of transactions, with the largest proportion (66 per cent of total volume) being overseas property companies. UK-based vendors, mainly property companies as well (17 per cent), account for 27 per cent of total volume sold. It is important to highlight the apparent number of very large transactions which have mainly contributed to the total volume – this indicates a strengthening commercial property market from large international institutions.
 
Turnover for the first quarter of 2014 is likely to be strong in the City & Docklands market with the level of acquisitions currently under offer amounting to approximately another GBP1.3bn across approximately 30 transactions.
 
Bill Tyser, head of City investment at Cushman & Wakefield, says: “The outlook remains for a healthy but opportunity constrained market going forward. Whilst some concerns persist over the possibility that further yield compression is limited in light of possible bond yield increases which might result in yield expansion on the horizon, the market is now entering the era of a return to property fundamentals in light of economic recovery – principally that of property rental growth, with a controlled supply pipeline and increasing occupier sentiment, decision making and demand.
 
“The outlook for 2014 is positive with continued international capital inflow coupled with a strengthening UK institutional investor demand.”
 
In the West End market, Q4 2013 has seen GBP2.3bn of turnover in 39 transactions with an average deal size of GBP58.3m. This takes the annual figure for West End investment to GBP8bn across 187 transactions – the highest annual turnover on record. Around 75 per cent of the volume transaction in 2013 was purchased by international investors, up from 52 per cent in 2012.
 
Mike Tremayne, head of West End investment at Cushman & Wakefield, says: “The outlook for 2014 is very positive. With a continuing mismatch between high levels of investor demand and inefficient supply, we see no sign of this competitive market abating.” 

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