Latest research indicates Central London office investment volumes for 2019 could total £12bn
The latest research from JLL has highlighted that close to £11bn of central London offices have been traded so far in 2019 and that this could climb to £12bn by the year-end. This would represent a fall of 33% from 2018 when £18bn of transactions took place.
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To date in 2019 £4.4bn of office assets have been traded in the West End, whilst the City of London has seen £6.4bn of transactions.
JLL’s research found that there is currently £3.5bn of stock under offer across central London and £5.1bn of assets being marketed. These figures represent a significant increase from the end of the third quarter when deals under offer totalled £2.7bn and there was £2.5bn of available product.
Julian Sandbach, head of central London capital markets at JLL, said: “It was fully anticipated that the political uncertainty that has characterised much of 2019 would lead to depressed volumes as investors have adopted a cautious approach and opportunities have been limited. These figures do however underline a continued appetite for investment property in central London and in recent weeks we have seen a number of significant transactions conclude, such as the Post Building on New Oxford Street which was bought by the Spanish investor Pontegadea for £610m and 1&2 London Wall Place which was purchased by Brookfield for £350m for the 50% share, which suggests that foreign capital is re-entering the market.
“The result of the General Election offers the very real prospect of the government providing clarity around the UK’s exit from the EU, and we expect this to lead to a further uptick in the deployment of international capital seeking to access central London opportunities.”
JLL said, “The resounding victory for Boris Johnson’s Conservatives in the UK election will provide business and the property industry with a degree of much needed certainty. It now looks as if the UK will definitely leave the EU at the end of January 2020, based on the Withdrawal Agreement renegotiated by the Prime Minister earlier this year. There is likely to be a bounce in activity in leasing and investment markets as investor and business confidence return.”
“Nevertheless it is important to emphasise that the longer-term direction of travel is still unclear. The Conservative campaign has focused on delivering the EU withdrawal agreement and has been almost silent on the next and most important stage of the negotiations – the future relationship – as well as the details of their domestic agenda. The approach that Johnson will take here was not clarified during the campaign.
“This may have been an electorally smart strategy, but it provides few clues as to what sort of outcomes the Government will be aiming for, and what sort of domestic policies it will adopt in response. The two are intertwined; membership of the customs union and single market has been at the heart of the UK economic model for decades, and it is hard to argue that the radical step of withdrawal would not lead to equally radical changes in the domestic model.
“The UK is at an inflection point, the nature of which will only become obvious in the coming months. It is likely to be a hectic period, given the ambitious timetable of a trade deal by the end of 2020, and the fact that Johnson has ruled out an extension to the transition period. A ‘no deal’ at the end of the year – albeit a more manageable one than before the Withdrawal Agreement – is still a real risk. The desire to simultaneously negotiate a US trade deal is a further strain. This may mean any period of market exuberance is temporary.
“There are some clues. Johnson’s large majority gives him a high level of freedom. He will not be dependent on any faction in the party, and given the targeting of more blue-collar seats, could aim for a more “one nation” style of government, in line with his tenure as London mayor. This is likely to manifest itself in greater investment in public services – particularly regional transport, which could lead to significant benefits for the property and regeneration sector outside London.
“While general business policy is likely to remain supportive, the challenges of Brexit – in economic and procedural terms – remains the main issue. The large majority also gives Johnson the opportunity to adopt a closer relationship with the EU and deprioritise a US trade deal, if he so wishes. However, this is not guaranteed, and Johnson could adopt a more US-aligned, libertarian, tax-cutting approach, which some parts of the industry would welcome – but this might risk alienating new found support in blue-collar parts of the country.”
JLL cited that there is a record amount of capital seeking a home in the UK, with more than $80bn of new capital set to be allocated to London real estate.
Julian Sandbach concluded: “There is a significant weight of money continuing to target the UK, and London in particular. The election result is likely to increase the level of liquidity targeting London real estate. This will be particularly prevalent in respect of overseas investors, who are keen to exploit London’s yield arbitrage over other major European cities and recognise London’s low vacancy levels, strong demand and tight future development supply – meaning that the prospect of further rental growth in the capital is compelling.
“The uncertainty we have experienced this year did not result in distress in the market and sellers have not been inclined to discount as they are more than happy to hold in the expectation that clarity over Brexit and our future trading relationships will bring sharper pricing and a better opportunity to sell. Looking forward to 2020 we expect to see a tightening of the spread between buyers and sellers which should result in increased in investment activity.”