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London, 13 December 2016 – Central London investment turnover is on track to reach £13.8 billion, slightly below the long term average of £14.4 billion. Private overseas investors have been a key source of capital in the second half of the year, and have acquired £2.3 billion of London office property over the past 12 months, rising from £1.7 billion in 2015, with institutional investors currently more cautious.
West End volumes are on track for a full year total of £5.9 billion, 8% above the average level over the past ten years, while turnover in the City and East London markets is expected to be 12% below average this year. The City markets have seen more direct exposure to the uncertain future relationship with the EU and this is reflected in the 2016 outturn.
Prime yields in London have remained stable in Q4, at 3.5% for smaller lot sizes in the West End and 4.25% in the City. At these levels, London yields offer a meaningful discount to other global cities, such as Paris (3.0%), New York (3.2%) and Tokyo (2.95%), having decoupled from wider global pricing trends that have seen yields continue to tighten in 2016.
Julian Sandbach, Head of Central London Capital Markets, commented: “Central London has benefitted from sustained demand from private investors, both high net worth individuals and property companies, who have stepped to take advantage of currency depreciation and reduced competition from UK funds and global institutions in recent months. We have seen significant growth in direct investment from Hong Kong and Chinese Investors, taking advantage of both Sterling’s depreciation against the HKD and RMB but also a diversification away from their domestic markets.
“Looking ahead to 2017, we expect global institutions to return to the market in greater numbers, when the shape of Brexit is known and provided that occupier markets remain resilient.”
Ben Burston, Head of UK Office and Capital Markets Research commented: “The composition of the diverse investor group targeting London continues to evolve, with private overseas investors taking a fast-growing share of activity given more cautious institutional demand since the referendum. Many private investors are keen to diversify their holdings internationally, and Brexit is viewed as an opportunity to benefit from discounted pricing in London relative to other major global centres that have continued to see yield compression in 2016.”
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