London Midtown real estate has delivered better income returns than City and West End for Investors over the last three years after landing a succession of City and West End relocations, according to the latest Farebrother/IPD Midtown Investment Report.
Midtown has also made the greatest recovery in rental values, rising higher than City and West End to within 15% of their peak in June 2007.
Rental growth is now the main attraction to the market for Investors. In 2011, occupier take-up grew by 17% to 2.2 million ft² with relocations to Midtown by Google, NBCUniversal, John Laing plc and Tate & Lyle, among others. Investors have followed, injecting nearly twice as much money in 2011, £2.33 billion, as they did in the previous year.
Alastair Hilton, Head of Investment at Farebrother, commented "Midtown's strong take-up, low supply, active demand and restricted development pipeline make a compelling case. We anticipate prime yields to be maintained in 2012. The secondary sector will remain more volatile on account of its higher risk profile. This sector still faces considerable challenges in raising finance."
Tom Elliott of Land Securities commented, "We've been active in the Midtown market for a number of years and we've seen the quality of the real estate improve significantly. New Street Square has contributed to putting this part of the capital on the map for London's businesses and helped push Midtown rents towards those found in the City.
"It is now seen as a well-established office occupier location and the arrival of Crossrail will only add to its profile and draw."
Greg Mansell, Senior Research Manager at IPD, explained, "Foreign Investors have been the dominant source of capital in London's investment market for some time now, particularly those targeting the City's larger assets, however, Midtown's wide range of lot sizes makes the market more accessible to many domestic Investors and bidding remains extremely competitive across the board.
Midtown has proven it can maintain a level occupier demand to sustain rental value growth, thanks to its diverse and affluent tenant base. Outside of London, the rest of the South East saw rents stagnate last quarter after 10 quarters of growth and the rest of the UK has yet to turn the corner, with rents falling since Q3 2008."
The Farebrother/IPD Midtown Investment Market Report was launched at a private breakfast for investors and developers on Friday May 25.