Investor spend on central London offices has crashed by almost two thirds, as rising interest rates and the post-pandemic changes to traditional working patterns take their toll.
Provisional data from real estate consultancy JLL for the Evening Standard shows investment volumes in the three months to September 30 were £1.2 billion in the City and West End.
The company said that was 63% below the £3.2 billion transacted in the third quarter in 2022 and brings year to date sales to £4.98 billion.
Julian Sandbach, the firm’s head of central London capital markets said: “The level of capital invested in central London offices at the end of September is at profoundly low levels, however 2023 is still likely to exceed the historically low levels of investment in 2008/9 just pre and post the global financial crash.”
The capital’s huge office market has seen lettings fall and vacancies climb in a number of cases as employers reassess what space they need for hybrid working. But tenant demand has been solid from businesses looking to upgrade to more modern and green headquarters.
Toby Courtauld, chief executive of London developer GPE today said in a business update: “We are seeing healthy demand across our range of high quality, well-located spaces, signing up customers at rents comfortably ahead of March 2023 rental values.”
Looking at the investment market, JLL’s Sandbach said: “The twin impacts of rapidly rising interest rates, coupled with structural challenges regarding the nature of office working have combined to deliver uncertainty to the marketplace.”
But he added: “Encouragingly we are seeing levels of transactions under offer to buyers increasing. Institutional activity is muted, as private investors fill the void, enjoying higher rates of return on prime assets in the current climate.”
The firm estimates £1.5 billion of space is currently under offer, and sales that completed over the Summer included GPE’s £70 million deal for the Soho Square estate.
A number of developers are betting on businesses wanting top quality offices to attract employees, even if they are only working in them for part of the week.
The twin impacts of rapidly rising interest rates, coupled with structural challenges regarding the nature of office working have combined to deliver uncertainty to the marketplace.
Dominic Amey, managing director London markets at property agent Avison Young, said: “There is substantial investor interest from the UK and overseas, ready to buy now or watching and waiting in the wings, but owners, who are able to, will try to hold their assets until valuations improve, or some owners may try to sell at overly optimistic pricing, and buyers just aren’t engaging on these, resulting in lower trading volumes.”
