Knight Frank has unveiled its latest analysis and forecasts for the central London office.
Highlights:
Investment Market
• In 2012, the central London office market saw its strongest year for investment since 2007, thanks to a record level of purchases by foreign investors
• Total investment turnover for central London was £13.8 bn in 2012, up from £9.6 bn in 2011, and higher than the ten year average figure of £10.8 bn
• In 2012, overseas buyers invested £9.6 bn, the highest figure on record, and nearly 70% of total activity. In 2000, overseas buyers accounted for 24% of deals
• This is the fifth consecutive year that foreign investors have accounted for the majority of investment purchases by volume
Leasing Market
• Take-up of office space in the leasing market was 9.6 m sq ft in 2012, which was down on 2011 (10.7 m sq ft)
• The vacancy rate (available office space as % of total stock) was 7.2% at the end of 2012, compared to 7.3% at the end of 2011. This is the first time on record that the UK economy has experienced a recession without the central London vacancy rate increasing
• The West End vacancy rate is now 5.6%, significantly lower than the long-term average of 7.6%
• The City office market was a bright spot, with take-up increasing to 5.8 m sq ft in 2012, up from 5.5 m sq ft in 2011. The City vacancy rate was 8.4%, down from 8.9% a year earlier
• The City benefitted from a growing cluster of technology, media and telecoms firms, who acquired 1.2 m sq ft of office space in the 2012. This marks a 25% increase on 2011
Residential market
• Transaction levels for 2012 hit £18 billion with 11,900 deals contracted at an average price of £1.5 million
• Prime Central London growth for 2012 hit an average of 8.7%. The prime markets of Belgravia and Knightsbridge were the star performers at 15%
• An analysis of all transactions show UK buyers accounted for 58% of purchases. In the new homes environment this figure decreases to 27%
Hong Kong, Jakarta and Beijing are the only major global cities to have outperformed London in terms of price growth since the financial crisis low in Q1 2009
• Overseas buyers purchased central London new-build property with a value of £2.2 billion in 2012, up 22% from £1.8 billion in 2011
Singapore was the most active overseas buyer for London new-build property in central London in 2012, followed by Hong Kong on the second place
Stephen Clifton, Investment Partner at Knight Frank, said, “Foreign buyers dominating the London office investment market has become an established state of affairs. The pound has weakened further in recent weeks, which only increases the logic for overseas investors to buy in London. Also, pricing looks attractive compared to their home markets in many cases. Prime yields on City offices are around 5%, on West End offices they are around 4%, whereas in Hong Kong they are around 3%. In 2012, much of the focus was on the safer assets, but in 2013 I expect to see investors taking on more risk, including looking at development sites in order to ride the global economic recovery.”
John Snow, Head of Central London offices at Knight Frank, concluded, “London proved in 2012 it deserves its reputation as a resilient property market. In the leasing market, supply is comparatively low, with the vacancy rate at 7.2%, which is below the long run average figure. The investment market remains popular with overseas investors, who are now spending more than double the amount on London offices that they did ten years ago.”