Savills plc

12/02/2021 | Press release | Distributed by Public on 12/02/2021 03:33

Central London is on course to top pre-pandemic office investment levels

The international real estate agent predicts that £5.35bn of transactions will complete during the final three months of 2021, the culmination of a year that has seen increasing transaction momentum in the UK capital.

If the quarter rounds out at £5.35bn, as anticipated, this will be the highest fourth quarterly figure since 2017. It will also be ahead of the £5.31bn completed during the same period in 2019. It will also bring the total turnover for 2021 to £13.1bn, a similar level reached in 2019.

Currently there are approximately £4.56bn of assets under offer across Central London, up slightly on the 5-year average by 1%, with under offers in the West End standing at a record £3.3bn, almost double the amount of turnover we have seen under offer at this point in the past 5 years.

The pace in the market has been aided by a marked change in the number of assets being formally marketed, said Savills. In the City of London in October, 15 buildings were launched for sale, while 18 came to market in the West End.

In the most notable acquisition of the quarter, Omnicom Group Inc acquired its London HQ at 2 & 3 Bankside from German fund manager DWS for £440m, reflecting a net initial yield of 4.52% and a capital value of £1,058 psf. The sale, which was a significant bellwether transaction for the market, following an extremely competitive bidding process, traded at £30m ahead of the quoting price.

Stephen Down, Head of Central London Investment, Savills, says: "The sale highlighted clear investor appetite for best-in-class real estate, a theme we expect to continue into 2022 as investors look to own quality real estate which meets occupiers evolving sustainability standards."

Prime yields for City offices are currently 3.75%, while the West End office asset yields are 3.25% - representing a 25bp compression in both cases since October 2020.

However, Savills anticipates further yield compression over the next 12 months given London has higher rental growth prospects and a current yield discount against the five-year average, according to its recent Emerging European Office Themes report, released in November.