The West End Office Investment market has had a record year totalling £7.4 billion in sales, according to figures released by Knight Frank.
Despite low prime office yield levels of 3.5% in the West End, investor interest in the market remained strong thanks to on-going rental growth, and widely held expectations that rents will increase further in 2016. Also, the low level of supply in the leasing market, where the vacancy rate is at its lowest level since 1989, is drawing more investors towards buying development sites.
Two thirds of the West End’s total transactions were by overseas capital, with the largest deal done by Far Eastern investors and Spanish capital completing on the second and fifth largest deals of the year.
The City increased total investment to £10.7 billion, a seven per cent rise on the previous year, and the second best performance on record. This is well above the £9.8 billion recorded in 2007, when the Global Financial Crisis was beginning, and 41% higher than the ten year average figure of £7.6 billion.
Moving forward over the next twelve months, development and refurbishment projects will be the headline focus of investors looking to spend money in the Capital – viewed as a good way to earn profit and launch space quickly to an undersupplied market.
Sub markets such as Shoreditch and Midtown are forecasted to be prominent locations; because of above average forecast rental growth, 10% and 9.6% respectively.
Anthony Barnard, Head of West End Capital Markets, added: “With the West End office market achieving record capital turnover in 2015, reaching a total of £7.4 billion, up 13% from the previous year – this further reinforces the West End’s status as the ‘Gold Bullion’ of real estate. Investors are offered liquidity, real performance and security of income. The geographical landscape of investors is always changing, but the West End continues to be truly international, drawing capital from all corners of the globe. Despite unprecedented high levels of availability in the fourth quarter last year, the market finished the year with only £260 million of available assets, demonstrating the market’s resilience in the face of global economic headwinds.”
James Roberts, Chief Economist, commented: ”The West End’s appeal has been a combination of safe haven, given the volatility we are seeing in the bond and equity markets, and the prospect of the income stream increasing via rental growth. The coupon on a bond typically stays unchanged, but investors feel confident that the ‘coupon’ on a West End office, namely the rent cheque, will increase in the future. Some say that West End office yields are too low at 3.5%, but compared to many government bond yields around the world they look actually look high.”
