Below we reflect on the commercial investment landscape in London and share six key themes defining the market:

Theme 1. A lack of quality stock for sale: Investment turnover is down, yes, but is a lack of stock appears to be driving greater interest in refurbishment opportunities. 

The slowdown in investment activity has in part been fuelled by a lack of assets for sale. Indeed, long-income assets on the market are few and far between. Furthermore, there are no desperate vendors – in fact many are seeking premiums due to the dearth of quality stock.

Theme 2. Yield movement: London's prime office yields now look as attractive as the regions, so what does this mean for investors?

During Q1 2019, we raised our prime office yields for London by 25 bps to 3.75% for the West End and 4.50% for the City. This was the first upward adjustment since the Brexit referendum. Given the strength and resilience in the occupier market, prime headline rents have edged up to record levels in most submarkets we monitor, supported by a lack of supply. A lack of quality stock and some assets taking a little longer to trade than anticipated drove our decision. Our experience shows that the volume of capital waiting in the wings is growing and we are likely to move our yields back in as soon as some of this capital begins to be deployed.

Theme 3. Geopolitical tensions driving inquiries: London is perhaps starting to look relatively safer again in light of events elsewhere in the world, Brexit or not.

London and the UK have historically registered an upturn in investor appetite during periods of global geopolitical tensions. Recent weeks have reaffirmed this trend, with a notable pick up in interest from overseas investors.

Theme 4. Private investors remain active: While this may be true, the shortage of stock may curtail activity from this important cohort.

There is evidence to suggest that HNWI (high net worth individuals) are still very active across Europe and especially UK. While the larger institutional money may have pared back activity due to uncertainty surrounding Brexit, individual investors are still being drawn in by the safety and security of an asset in London. The difference between individuals and institutions however are the lot sizes, with the former seeking assets in the £40-80 million bracket.

Theme 5. UK institutions circling London: With reduced competition for now, UK institutions appear to be looking at London in increasing numbers.

International investors routinely account for 70-80%+ of total office investment activity in London. However, with some overseas investors scaling back activity for now, we have noted an upturn in interest from UK institutions in the London office market.

Theme 6. Economic growth set to improve: London's economy appears poised for growth, with professional services, technical, scientific and real estate sectors forecast to power growth through to 2050.

According to the Greater London Authority (GLA), employment in London is forecast to grow by an annual average rate of 0.71% between now and 2050. This will take the total number of people employed to almost 7.2 million, which translates into approximately 42,000 new jobs each year. Indeed it is these services that have been the driving force behind office space requirements across London and currently account for 50% of all office space demand.