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Overseas Investor Spend on Central London Offices up 25% in H1 2011

According to preliminary figures from Jones Lang LaSalle’s Q2 2011Central London Market Report


London, 14th July 2011 - Overseas purchasers have invested £3.1 billion in Central London’s office market during the first six months of 2011, accounting for 57 percent of total office investment volumes in the capital according to Jones Lang LaSalle. This represents an increase of 25 percent on the same period last year when overseas investors transacted £2.5 billion in Central London offices.  Total investment volumes inLondon’s office market in the first half of 2011 reached £5.4 billion, compared with £4.2 billion in the first half of 2010.

Damian Corbett, Head of London Capital Markets at Jones Lang LaSalle, said: “London remains the focus for global capital, with far eastern high net worth interest particularly evident. The last quarter has also seen a pick-up in activity from UK institutions. Development plays are attracting strong interest, especially those with residential conversion angles in core West End locations. Lack of stock continues to be an issue and with no sign of investor demand tailing off competition will remain strong for good quality assets.”

Over £1 billion was traded in the West End during Q2 2011, with overseas investors responsible for 36 percent, compared to 65 percent in Q1 (when the total traded was £1.2 billion). Eight significant transactions took place during the quarter - the most notable deal was the sale of Jubilee House on Oxford Street to a private Spanish investor for £160 million.

Chris Brett, Director of Jones Lang LaSalle’s International desk, said: “'London continues to show relative value on a global basis so demand from overseas remains buoyant. Asian capital is a growing force in the London market and we expect this to continue in the third quarter, both by way of institutional demand and private wealth.”

In the City, which recorded £1.6 billion of investment in the second quarter, overseas capital accounted for 57percent. The first half of the year saw total investment volumes reach £3 billionin the City office market, an 85percent increase on the equivalent period last year. Volumes have been driven by institutions, which accounted for 51 percent of investment. The most significant transaction of the second quarter was the sale of 1 Finsbury Circus by Invesco Real Estate for £141.5 million.

Chris Ireland, UK Board member, Capital Markets at Jones Lang LaSalle, said: “Central London is proving to be a very resilient market, attracting strong interest from both UK institutions and overseas investors. It is interesting to note however, that as a result of pricing in central London remaining strong, we are noticing a number of major overseas investors who are now prepared to consider good quality product in the south east and regional markets where higher yields can be obtained.”

Other key highlights across the London Office market in Q2 2011 I include:

The West End:
-         Over 830,000 sqft was let across 53 deals in the second quarter, a 29 percent increase on Q1
-         The Service industry dominated take-up accounting for 59 percent
-         Overall occupier demand increased by 5 percent to 4.4 million sqft
-         Total supply fell 12 percent to 4.1 million sqft while Grade A supply fell 10 percent to 2 million sqft
-         Overall vacancy rates fell from 5.2 percent to 4.6 percent and Grade A from 2.6 percent to 2.3 percent. Vacancy rates are now at their lowest levels since 2008
-         Prime rents increased 2.7 percent to £95.00 per sqft

The City Market:
-         742,000 sqft was transacted across 59 deals
-         The Banking and Finance and Service Industries were the most active during the second quarter each accounting for 28 percent of space let
-         Overall demand increased 24 percent to 10.4 million sqft as a number of media occupiers launched tentative requirements seeking in excess of 100,000   sqft
-         Total supply decreased 6 percent to end the quarter at 7.5 million sqft while Grade A fell 3 percent to 4.1 million sqft
-         Overall vacancy rates decreased from 7.4 percent to 6.9 percent and Grade A fell slightly from 4.0 percent to 3.9 percent
-         Prime rents remained stable at £55.00 per sqft

– ends –

Notes to Editors:

Jones Lang LaSalle’s Central London Market Report covers the West End, City and Docklands office market. The full quarter two report will be available in mid-July.