London office market is benefitting from a sharp rebound in activity during the final quarter of 2020 with pent up investor demand released as confidence in the future of the office is reinforced by the rollout of a Covid vaccine.
According to the latest research from Knight Frank, with £3.5bn worth of transactions so far in Q4 and a further £3.2bn under offer, the market has already beaten the long-term quarterly average of £3.4bn.
The start of the quarter saw numerous big-ticket deals, including Brookfield’s sale of 1 London Wall Place for £480m, CPPIB’s sale of their 50% of the Nova Estate for £450m and Mitsui’s sale of White City Place for £235m. That has now been bolstered by LandSec’s recent sale of One and Two New Ludgate for £552m and BP’s sale of 1 St James’s Square for £250m.
Despite the recent boost, year-to-date investment turnover stands at £8bn compared to the long-term average of £12.5bn. During the height of the pandemic in Q2 and Q3, less than £2bn was traded.
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London office stock available for purchase stands at £8bn, including assets under offer, so the market now has 84% more stock available than the end of last year.
”London office yields are amongst the highest in Europe…”
“London’s office yields are amongst the highest in Europe and compare favourably to other asset classes, particularly global bond offerings, most of which are negative yielding. To investors who believe in London’s future, it is a great opportunity to pick up stock with reduced competition. With £8bn on the market even before January stock arrives, it will be a busy first six months of 2021,” said Nick Braybrook, Head of London Capital Markets at Knight Frank.
“On a global level, at £3.3bn, London was the number one recipient of cross-border capital flows into offices for the first nine months of 2020, outpacing Paris (£2.6 bn) and Manhattan (£1.3 bn); a tremendous vote of confidence for the capital. To put the heightened activity into perspective, at £8bn so far in 2020, we have already outperformed turnover levels during the GFC, which reached £6.8bn in 2008 and £6bn in 2009, highlighting London’s safe haven status and ability to attract global capital,” added Faisal Durrani, Head of London Commercial Research at Knight Frank.
“The finance and banking, professional services and tech sectors remain notably active, committing to space still under development, reflecting a longer-term, post-Covid view. These businesses are continuing to secure the very best offices in a historically supply starved environment. Prime grade-A buildings will remain hotly contested, as office environments take centre stage in the ever-persistent war for talent – a critical driver that preceded and will outlast the pandemic.”
