European investors were the most active of the non-domestic investor groups in London in H1 2020, to supersede investment activity by AsiaPac investors for the first time since 2011, says Savills. According to the latest research from the international real estate advisor, European investment accounted for 39% ( €1.3bn/£1.17bn) of all activity, compared to a 14% market share by investors originating from Asia (€480.6m/£428m). UK investors accounted for 33% of all activity, spending just over €1.2bn (£1bn) in total.
Savills points out that the total €3.3bn (£2.9bn) invested in London’s commercial property market in H1 2020 represents less than half the volume recorded a year previously (€5.8bn/£5.2bn in H1 2019). However, the level of buyer appetite in the market suggests the fall in trading volumes is largely the result of a lack of opportunity rather than a lack of investor appetite, as vendors hold onto real estate stock in the wake of uncertainty.
Oliver Bamber, director in the Central London investment team at Savills, comments: “Faced with growing pressure to rebalance their portfolios, European institutional investors are showing renewed interest in London. A constricted office market and conservative development pipeline look attractive and prime yields on city-centre office assets (circa 4%) offer a considerable discount to similar assets in Frankfurt, Munich and Paris (circa 2-3%). Moreover, the Covid-19 pandemic has acted as a leveller across many aspects of the property investment landscape and Brexit is no longer viewed as the greatest threat to income security. Low-interest rates globally sees real estate offering relative strong returns, driving more money seeking a yield into property retail funds and pension vehicles to be re-allocated. With institutional investors under pressure to spend before the end of the year, competition for the few sales to be launched in London is maintaining pre-COVID pricing with the suggestion prime yields could harden in the near term. The availability of purchasable stock remains an issue but as businesses start to return to the office, albeit on a scaled-down basis, we anticipate that this could be accompanied with an environment of improving confidence encouraging trading to commence again.”