Central London Commercial Property Investment is Booming

Commercial real estate investment into London in July 2017 was its strongest in a decade, according to estate agent Savills.

More than £2.3bn was invested in central London commercial property over the month, with total turnover for 2017 to the end of July reaching £11.5bn, a 24% increase on the same period in 2016.

The figures suggest central London remains unaffected by the vote to leave the European Union.

Hunter Booth, joint head of the West End agency team at Savills, said: ”

The events of the past 14 months may have made some occupiers pause for thought, but these latest record figures, against a backdrop of strong office take-up across central London to year date, belie any fears that may have been circulating of a mass exodus of occupiers from London. They therefore serve as a boost for the city amid ongoing concerns over Brexit negotiations.”

Walkie Talkie sale to Hong Kong conglomerate is boost for month

Activity in July was boosted by the sale of the ‘Walkie Talkie’ building to the property unit of Hong Kong’s Lee Kum Kee Health Products Group, a conglomerate that makes condiments and healthcare products and also develops property.

The 37-storey skyscraper at 20 Fenchurch Street – which in 2015 won the Carbuncle Cup, an award for the ugliest building of the year – has around 700,000 sq ft of office space and 17,000 sq ft of retail space.

LKK Health Products Group agreed to pay £1.28bn for the building, surpassing the £1.15bn sale of the ‘Cheesegrater’ skyscraper in Leadenhall to Chinese investors earlier this year and the £1.1bn paid by the Qatar Investment Authority to acquire the HSBC tower in Canary Wharf in December 2014.

LKK said the acquisition was a “long-term investment” that extends its property portfolio and will provide a “reasonable return” from rental income.

Asian investors dominate transactions

Investors based in Asia have accounted for almost two-thirds (63%) of the capital’s turnover in the year to date – although Beijing has said it would be reducing real estate investment into London from mainland property developers. Stephen Down, head of Savills central London investment team, said:

“Although the restrictions announced earlier in August by the Chinese government will reduce real estate investment from mainland Chinese property developers and institutions, investors from Hong Kong . . . are likely to continue to be active however we have noticed their buying criteria has become increasingly selective.”

European investors were behind 17% of turnover and UK investors were responsible for 11%, according to Savills’ report.

Chris Unwin, the head of global estate research at investment manager Aviva Investors, says foreign investors prefer “high-quality properties, including ‘trophy’ assets in larger markets, especially London.”

In the West End market, Asian investors accounted for approximately half of turnover to the end of July; UK institutions accounted for just 2% of acquisitions by turnover.

July’s largest transaction was Stockholm-headquartered streaming service Spotify taking 104,133 sq ft at The Adelphi on The Strand, which is now fully occupied, while HSBC took the entire 36,500 sq ft at 7 Cork Street in Mayfair.

The last time that investment in the capital’s commercial property sector reached the level seen in July was in March 2007 – just a few months prior to the beginning of the global financial crisis.

Strong activity predicted for remainder of year

Savills’ Stephen Down says he is expecting more properties to come to market towards the end of this calendar year: “provided these sales are priced correctly, we should see continued strong turnover activity of the next three to four months,” he said.

Prime City yield is currently 4% and prime West End yield is 3.25%, according to Savills.

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