The Central London commercial property investment market remained robust in 2011, despite widespread economic uncertainty, according to Cushman & Wakefield. Total investment volumes totalled £10.9bn for the year. This represents an encouraging jump on 2010’s total of £9.9bn, confirming the Capital’s standing as a relatively safe and stable home for equity in an uncertain economic environment, where returns from other asset classes remain extremely low.
Demand from foreign high net-worth individuals, particularly those from the Far-East, continues to be strong. Competition for prime retail assets in the West End remains fierce, bolstered by a lack of quality supply and potential for rental uplift. The majority of West End purchases (35%) in Q4 2011 were by overseas private investors – up from 30% in Q3 2011. In the City & Docklands, Asian investors – largely led by Sovereign Wealth Funds – accounted for 30% of all deals in 2011, making up the majority of total overseas activity for the year (41%).
Clive Bull, Head of Central London Investment at Cushman & Wakefield, said, “West End property, particularly retail, is in high demand, with overseas private investors very active in 2011. Looking ahead to 2012, all markets will be tough but we expect the West End to continue attracting overseas equity given the wealth preservation characteristics of the prime assets within this area. This is being bolstered by the scope for rental growth, leading largely to inflation-proofed income plus capital appreciation. We are likely to see more activity from the opportunity funds and propcos/ REITS as long as stock is economically-priced.”
Bill Tyser, Head of City Investment at Cushman & Wakefield said, “With continued ultra-low interest rates, further geo-political unrest and relatively weak Sterling, there is no reason to believe that there will be any let-up in interest from international investors into the Central London market, which will continue to be considered as a ‘safe haven’. We are expecting to see a number of European funds sell assets and further potential profit-taking by those investors who bought early in the market in 2008 and 2009.”
Central London investment in Q4 2011 was £2.54bn, up from £2.22bn in the previous quarter. Overall, in the West End, £790m was transacted in Q4 2011. A large number of transactions spilled over to 2012 as there is less pressure on private investors to complete by Christmas as opposed to institutions who often need to close off their positions before the festive break. The figure compares to £1.43bn in Q3 2011. In total, £4.5bn was transacted, through 139 deals, in the West End in 2011.
Provable prime West End retail rents stood at £965 per sq ft at the end of 2011, up 2% from £950 per sq ft in December 2010 – although this will increase considerably when much sought-after units become available and new rents are set. Prime West End office rents jumped 7.9% year-on-year, ending December 2011 at £102.50 per sq ft – up from £95 per sq ft in December 2010. Yields for prime retail and office remained stable, at 4% (Bond Street remaining at 3%).
Key West End deals in Q4 2011 included: the purchase of the W Hotel, 10 Wardour Street, by Al Faisal Holdings for £200m, reflecting a yield of 3.21% and the acquisition of 1-3 Berkeley Street by Crosstree for £155m, at a yield of 3.79%.
The City & Docklands investment market ended the year in a bullish mode. There was £1.75bn of transactions in Q4 2011, comprising 27 deals. This represents a sharp increase on the previous quarter (£796m/ 18 deals) and is up year-on-year (£1.36bn/ 20 deals). In total, £6.3bn was transacted, through 108 deals, in the City & Docklands in 2011. This compares favourably to £4.7bn in 2010.
During the year there were just under 20 transactions in the City & Docklands in excess of £100m, five of which occurred in Q4 2011. Overseas funds made almost half of all purchases in the quarter (44%) with international private investors accounting for 27%. Prime City office rents remained stable at around £55 per sq ft, and yields at 5%.
Key deals in the City & Docklands for Q4 2011 included: the sale of Tower 42 to Nathan Kirsch for £282m at a net initial yield of circa 6.9%; the acquisition of Milton & Shire Houses, 1 Silk Street, for £350m, at a yield of 5.4%, by the Asian Sovereign Wealth Fund, PNB; and the purchase of 60 Threadneedle Street, a Hammerson multi-let redevelopment, by St Martin’s Property Corporation for £186m, reflecting an initial yield of circa 4.65%.