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Despite fears that the UK economy is about to re-enter recession it seems that the London commercial property market remains a key destination for foreign investors looking to plough money into bricks and mortar.
According to Cushman & Wakefield, £6.3bn worth of deals were transacted in the City last year compared to £4.7bn in 2010 with at least 30% coming from overseas investors. St Martins Property, the Kuwaiti royal family’s sovereign wealth fund, are also following this strategy by selling off ‘non-core’ retail and industrial assets to free up cash to acquire more ‘trophy’, commercial assets in central London. Whether you agree with this strategy or not it all speaks positively of the London commercial property market and its desirability to foreign investors. This can only be a positive trend for the London economy and, alongside our strong Financial Services presence, will help maintain London as a global business powerhouse and reliable source of long-term return on investment.
In addition to the perception of London as a secure destination for foreign investors its geography will intrinsically contribute to push prices upwards as demand outstrips supply. With space at a premium in central London, development of any kind is limited and will inevitably lead to a bidding war. Furthermore, landmark developments like the Shard and the Walkie-Talkie require such a huge financial outlay that they are restricted to only the largest of companies – so it seems likely the clamour for high-quality real estate in London will continue to drive prices upwards, especially with all eyes on London in the Olympic year.
One note of caution, however, is the declining occupancy rates of London office blocks. According to James Young, Head of Cushman & Wakefield’s City office:
“Occupiers in general remain cautious and a number of decisions have been delayed. With the current economic uncertainty, 2012 will see take-up significantly below average. A number of planned schemes are likely to get pushed out and pre-letting is still a major requisite for most schemes. Prospects for demand look more positive looking further out, due to the volume of lease expiries beyond 2013.”
We may see occupancy rates in office blocks dip as businesses shy away from committing themselves in these uncertain times but I think we can continue to expect a lot of interest in London’s commercial property sector as investors take the long-term view over strong investments yields.
What do you think – I’d be keen to hear your thoughts?
Paul Phillips is the Senior Business & Support Services Consultant at Interim Partners.
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