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Andy Schofield

Central London offices: is it too late to invest?

​With the London Real Estate Forum taking place today and tomorrow, Andy Schofield (Director of Research, Property) provides an in-depth analysis of the Central London office market.

​With the London Real Estate Forum taking place today and tomorrow, Andy Schofield (Director of Research, Property) provides an in-depth analysis of the Central London office market.

Investment into Central London offices soared last year as the world’s deepest and most highly liquid cross-border market attracted substantial capital inflows from around the globe. Falling long term interest rates intensified the “hunt for yield” and boosted the global demand for real estate as an asset class. Central London was a prime target, particularly with the UK benefitting from a perceived safe haven status during the Eurozone crisis. The perception of London as a top global financial centre, combined with the ability to access secure tenant covenants under the protection of the upwards only rent review, no doubt added to the market’s appeal. In 2012, City transaction volumes more than doubled compared with the previous year, rising to £7.2 billion and nearly equalling the level witnessed in 2007. In contrast with the debt-fuelled excesses of the boom, however, last year proved to be one of the strongest years for equity-financed investment. Non-European investors accounted for three-quarters of the total, as big-ticket acquirers of prime real estate crowded out many of the City’s traditional investors. European investors gained better representation in the West End, however, accounting for over a third of the total invested and confining global cross-border investors to a 20% share.

Yields sharpened in response to the buoyant investment activity and are currently well below long run averages, particularly in the West End. The prospect of an unwinding in long term interest rates, orderly or otherwise, and the potential impact on property yields presents a major uncertainty for future investors. Investing in Central London offices today therefore requires a sanguine view of the outlook for rents, and we believe there are good reasons for optimism in this respect. In addition, an analysis of previous ten-year hold periods for IPD Central London office standing investments reveals that, by adopting a longer investment timeline, investors can partly insulate themselves from volatility and understand the parameters of performance under different economic outcomes.
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Andy Schofield

Andy Schofield

Director of Research

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