Investment in London commercial property rallies at year end (UK)

London has recorded its third consecutive quarter of rising investment in commercial property according to new statistics from property adviser Cushman & Wakefield. In Q4 investment volumes rose to £3.096 bn, up from £1.602 bn in Q3, for an annual total of £6.81 bn. (€7.8 bln.).

Although 2009 marked the first time since 2006 Q4-2007 Q2 that London investment has risen for three consecutive quarters, the year's total remained short of 2008's total of £6.99 bln. and just 35% of 2007's record total of £19.42 bln. (Last five years: 2009: £6.81 bln.; 2008: £6.99 bln.; 2007: £19.42 bln.; 2006: £14.49 bln.; 2005: £15.25 bln.).

The overall annual decline is down to the continuing economic downturn and the shortage of supply of assets on the market. The main sources of supply including REITs and funds were largely out of the market for 2009 and the expected sell off of distressed assets by the banks did not materialise. Demand did increase through the year however which encouraged more sellers and quarterly volumes therefore rose from just £679 million in Q1.

The West End market in 2009 saw £3.095 bln. of volumes, slightly down on 2008's total of £3.53 bln. The City & Docklands market in contrast had a better year than 2008 with £3.7 bln. invested against £3.46 bln.

Encouragingly, turnover in the City & Docklands market in Q4 2009 was more than three times greater than Q4 2008 and dominated by the acquisition of HSBC tower, Canary Wharf at £772 mln. and 88 Wood Street EC2 for £183 mln. by the Korean National Pension Fund and 5 Churchill Place, Canary Wharf by an un-identified overseas Private investor for £208 mln. 90% of purchasers in the City & Docklands were by international investors which are still benefiting strongly from the weakness of sterling, transparency of the UK market, low interest rates and relatively high yields in comparison to their own domestic market and other investment asset classes.

Bill Tyser, head of City investment, Cushman & Wakefield said: "The outlook for 2010 is certainly for investor appetite to continue. It remains to be seen where the buying opportunities will come from but there is a sense that more stock will come from the banks which will see the benefit of hardening yields and rising prices as an indicator to reduce some of their exposure. The reduction in the number of transactions in 2009 – 67 against 75 in 2008 – has highlighted this general lack of product in the market which has been available for the increasingly international and latterly national appetite as the UK REITs and UK institutions have re-emerged as potential buyers. This has been evidenced by the acquisition of 90 Queen Street by GPE for circa £46m and an 8.2% yield and 55 Gracechurch Street acquired by BP Pension Fund for circa £27.7 mln./8%."

Clive Bull, head of central London investment, Cushman & Wakefield said: "The most significant observation in 2009 has been the dominance of the overseas investor which accounted for 73% of all purchases. With sterling still so weak the London market represents good value with UK buyers only more recently coming back into the market in competition for stock. Although the annual total is marginally down on 2008, we are reasonably confident that 2009 was the low point in volumes and 2010 should see an increase as more stock becomes available especially from banks as prices rise and demand continues."

Source: Cushman & Wakefield

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