Central London Office Analysis reveals ongoing appeal of London with £3.6 billion transacted in quarter.

The final quarter of 2020 demonstrated the resilience of London’s investment market, with investment volumes totalling £3.6 billion. This represents nearly half of the year’s total investment of £7.8 billion and is more than three times the volume of the preceding quarter. Further, this figure exceeds the 10-year quarterly average for the first time since the final quarter of 2019, albeit by a marginal 2%, while prime yields remained stable across Central London.

Key statistics and highlights of the investment market in Q4:

• December was the most active month with a total of £1.7 billion transacted. This is in line with the corresponding month in 2018, but, to put it in context, it is nearly 60% down on December 2019;
• There were 37 transactions making it the most active quarter in 2020 yet still 35% below the 10-year average of 57. Only eight deals were larger than 100,000 sq ft;
• The largest transaction by sq ft was the 50% purchase of the 559,000 sq ft Nova Estate, SW1 for £435 million by Singaporean Suntec REIT from CPPIB, while Sun Venture’s £552 million acquisition of 1 & 2 New Ludgate, EC4 from Landsec was the largest by value;
• The West End attracted the majority of Q4’s activity, with 22 transactions totalling £2.0 billion – 54% of the quarterly total. The City saw £732 million transacted, with £629 million in Midtown and £284 million in the Tech Belt.;
• Unsurprisingly, 89% of investment came from overseas investors, with European and Asian investors especially active;
• Prime net initial yields remained relatively stable across Central London – these are 3.5% in the West End and 4% in the City.

Chris Gore, Principal, Central London Investment, Avison Young, said: “These signs of life at the close of a turbulent 2020 point towards the undoubtedly strong fundamentals that make London attractive to international investors. Looking ahead, we believe that the market for well-let trophy assets in central London will get more competitive and investors who are willing and able to view buildings will continue to acquire best-in-class assets at attractive yields compared to other core European cities. That being said, we may see some softening in pricing in the value-add and core-plus markets as rents come under downward pressure in the short term.”

Meanwhile, the second wave of Covid-19 alongside the second national lockdown continued to limit activity in the occupier market in Q4. The final quarter of the year saw just 875,000 sq ft let, bringing the annual total to a modest 5.1 million sq ft. This is comparable to figures last seen in 2003 and well below the post-GFC nadir of 6.5 million sq ft in 2009. However, there continue to be bright spots of demand, with TikTok rumoured to be under offer on 86,000 sq ft at Kaleidoscope EC1, while activity from the legal sector remained strong in 2020, with Slaughter and May, Cooley and Latham & Watkins all committing to the City through new leases or renewals.

Key statistics and highlights of the occupier market in Q4:

• Total take-up of 875,000 sq ft represented the fifth consecutive quarterly decline and was 14% down on Q3 and 64% below the 10-year average;
• Availability rose for the fourth consecutive quarter to 16 million sq ft, a 12% rise on Q3 and a 48% increase year-on-year. The central London vacancy rate has subsequently risen from 4.8% to 5.4%;
• There is now 12.3 million sq ft under construction, with 5.1million sq ft due to complete during 2021. Of the total development pipeline, 34% is already pre-let, leaving 8.1 million sq ft of available space;
• The largest letting in the period was for 74,379 sq ft at 33 Finsbury Square, EC2 by City University on a sublease from the University of Liverpool;
• Financial services was the most active tenant sector, comprising 26% of the quarter’s take-up. As in the previous quarter, the Government & Services sector and the TMT & Creative sector were the second and third most active, accounting for 23% and 16% respectively;
• It is believed that a new record rent was set at 30 Berkeley Square, W1 after a private family office agreed to pay a rumoured £277.50 per sq ft for 2,700 sq ft.

Nick Rock, Principal, West End Agency, Avison Young, said: “Despite the challenges of the year, we saw a new record rent set in the West End in Q4, with a similar feat in the City making headlines at the start of this year. We anticipate that this bifurcation of the market - with relatively robust demand for new space at one end of the spectrum and increasing amounts of discounted second-hand space available at the other – will continue to characterise take-up in 2021. More generally, despite the initial success of remote working in terms of productivity, there is a growing sentiment that the lack of collaboration, interaction and mentoring is negatively impacting productivity, innovation and mental health. While there will undoubtedly be changes in how we occupy office space, the growing desire to return to the office combined with the completion of the vaccination programme and the lifting of restrictions means that we are likely to see a rapid increase in market activity in the months ahead.”

Read the latest Central London Office Analysis report here.

Chris Gore

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