A resurgence of investor demand for South East offices was reflected in strong levels of activity in Q3 2013. According to Knight Frank, volumes reached £750m during the quarter, well over twice the 5-year average and 75% above the 10-year average.
Q3 saw 32 separate deals, the highest seen in a single quarter since Q3 2007. Q3’s largest deal saw overseas investor Oaktree & Patrizia AG’s purchase IQ Winnersh from SEGRO for £245m, while Q3’s sharpest yield was Standard Life’s £70.8m purchase of the QVC Building, Chiswick Park, reflecting an initial yield of 4.75%.
While the amount of stock on the market has increased compared with earlier in the year, it has not kept up with demand. Consequently, prices for both prime and good quality secondary quality assets continued to harden during the quarter. Yields for prime 15-year income moved in from 5.75% to 5.50%, following a further 25 basis point shift in Q2.
With clear signs of recovery in the occupier market, there is a collective sense that the South East presently offers good-value, with UK funds and overseas opportunity funds under increasing pressure to spend outside Central London. Consequently, intensely competitive bidding scenarios have been seen for prime and good quality secondary assets, albeit in the more robust markets to the West of London and in the Thames Valley.
Tim Smither, Partner at Knight Frank said; “We expect the resurgence of activity seen in Q3 to continue into the final quarter, with both the UK funds and overseas opportunity investors keen to invest before the year-end. However, with sentiment as strong as it is, the one constraint to activity is the relative lack of stock available on the market, a situation which is likely to put further pressure on pricing.”
