JLL – Strong resilience in Central London leasing with UK investors emerging as largest capital source
The latest research from leading real estate adviser JLL has indicated that overall investment into Central London offices could total £5bn for the first half of 2019.
The latest research from leading real estate adviser JLL has indicated that overall investment into Central London offices could total £5bn for the first half of 2019. However, this would represent a 39% drop on the corresponding period in 2018 when £8.1bn was invested, at the half year. In 2019 to date UK investors emerged as the largest source of capital in the Central London market, accounting for around a third of all transactions.
Julian Sandbach, head of Central London Capital Markets at JLL said: “Political uncertainty is continuing to impact investor confidence at present, and this is most acutely felt by institutional investors who are particularly cautious due to uncertainty and understandably, risk. The irony of the situation is that the reverse is being seen in the occupational market where the volume of space let in the first half of 2019 is forecast to reach 4.3m sq ft, only 6% below the 10-year average.”
JLL cited that occupiers continue to show long-term confidence in Central London and recognise its place as a global business centre. In the first six months of 2019 a number of global operators from all sectors such as Facebook, Glencore, Milbank Tweed, Sony Music, ERBD, Brewin Dolphin and G Research have committed to significant amounts of office space in the capital as they continue to compete for the best quality buildings which reflect their brand and are a funnel to attract the best talent.
Dan Burn, head of City agency at JLL, added: “London has a dwindling supply pipeline and although many cranes can be seen across its skyline a number of these developments have been pre-leased, with broadly 48% of the buildings under construction already let to future occupiers. The squeeze is more acutely felt with 2019 product where 59% of speculative construction is now leased. In addition, as occupiers vie for the best space, there is a significant amount of space currently under offer, totaling 3.8m sq ft which we anticipate will push leasing totals for the year towards 10m sq ft, in line with 2018. Looking ahead, the low levels of speculative pipeline combined with the sustained occupier demand, will continue the upward pressure on rental growth, especially as the vacancy rate on brand new buildings is 0.5%.”
Julian Sandbach continued, “Undoubtedly the health of the leasing markets will provide an underlying level of confidence to investors, albeit much of this capital is sitting on the sidelines awaiting further clarification on Brexit outcomes. In 2018 inward investment was heavily dominated by Korean and Singaporean capital and whilst we have seen Korean investment recede from London this year, due to concerns from the securities firms to sell down their positions, we are yet to see a new international capital source emerge. Instead we have seen enhanced numbers of private individuals and family offices become more active, particularly in the West End, as a result of a reduction in levels of competition and a less crowded market and for the first time in many years UK buyers have been more active than any other group.
“Whilst investment transactional volumes are down, pricing levels have not suffered and yields have remained firm. The ever-decreasing supply pipeline coupled with strong levels of pre-leasing has led to intense competition for development and refurbishment opportunities across the capital. There is strong appetite from REITs, development managers and property companies seeking to reposition assets that will capitalise on the robust occupier demand and low future supply with pricing being driven hard by the strong competition.
“Furthermore, with London prime yields at an average of 4%, the arbitrage available over prime European cities at 3% is plain to see and for best in class assets, strong competition still exists.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated