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London

Central London office investment expected to exceed £18.5billion in 2015

City and West End sub-markets set to achieve highest ever turnover


London 21 December 2015 – Data released today by JLL indicates that Central London office investment volumes will exceed £18.5billion in 2015, with the City and West End sub-markets on track to achieve highest volumes ever recorded, at £11.3billion and £6.5billion respectively.

Docklands sub-market volumes are expected to fall from last year's total of £2.8billion to £700million, though last year's volumes were significantly boosted by the sale of the HSBC tower, for £1.1billion.

Overseas sources of capital have been prominent again this year, with Taiwanese investors particularly dominant. Historically, Taiwanese investors have lacked a strong presence in the London office market, but after debuting with three deals totalling £644 million in 2014, the total has risen to £934 million across a further three deals, with the likelihood of more to come in 2016. 

Prime yields stand at 3.5% for smaller lot sizes in the West End and 4.0% in the City, both down 25 basis points over the year. In conjunction with rental growth, this has driven capital value growth in 2015, with prime City values up by 19% and prime West End values up by 12%.

Damian Corbett, head of Central London office capital markets at JLL said: "Continued healthy market turnover is testament to the depth and liquidity of the London market. Some investors have taken the opportunity to realise profit, which is to be expected after a period of sustained growth.

"However, there continues to be an abundance of equity capital seeking to be placed in the world's leading real estate markets, as the recent rise of Taiwanese investment illustrates, and we expect London to continue to attract a broad base of global investors in 2016, with Chinese investors likely to return in force."

Ben Burston, head of UK office research at JLL said: "After a period of sustained growth, many investors are asking where we are in the cycle. However, while London yields have compressed to historic lows, they remain competitive with, and in some cases higher than, prime yields in other global markets such as New York, Tokyo, Paris and Hong Kong. Looking ahead to 2016, we expect yields to remain well supported, but the baton for value growth to be gradually passed on to the supply constrained occupational market, with rent-driven value growth the objective for many buyers."