As the dust settles on the UK’s recent departure from the EU, international investors are preparing to pour billions more money than usual into the UK capital’s commercial property market. This is according to recent findings from the real-estate consultancy Knight Frank…
The company’s annual London Report reveals that investors are now targeting London commercial assets with capital totalling £48.4bn. This is 21% higher than the corresponding figure in 2019, as well as £2bn more than in 2018. However, prices look set to soar as demand outstrips supply.
The numbers suggest a big turnaround for the London market
Investors will be competing for just £2.3bn of commercial property currently for sale. This relatively scarce supply likely reflects the depressed state of the market throughout 2019 as Brexit-related uncertainty dragged.
According to Knight Frank’s report, that year saw London commercial property investment activity decline by 15%, hitting £13.9bn. That was a sharp fall from the £16.8bn of investment activity in 2018, with both the Brexit factor and the short supply of assets restricting the number of deals.
Still, as quoted by Workplace Insight, London Capital Markets head Nick Braybrook observed: “Despite the fall in activity, London remained the second-largest market for commercial office real estate investment in 2019, topped only by Paris and ahead of New York, Hong Kong and Berlin.”
It’s a dramatic turnaround from the situation in late 2019, when disenchantment about the UK’s commercial property market was at its strongest for years. In that year’s third quarter, 62% of respondents to the RICS UK Commercial Property Market Survey believed that the overall market was in the property cycle’s downturn phase.
A rosy future beckons for London’s commercial property market
Braybook added that “London’s stability and global status is attracting international investors who see a competitive economy, strong occupier market and high office yields, compared with other global cities.” He cited the UK capital’s political stability, positive growth prospects, attractive exchange rate and high yields as factors all attracting investors to the “safe haven”.
However, investors whose interest in the market has only just been piqued ought to act quickly. Braybook anticipates London prices rising in tandem with international demand for the capital’s assets, noting that “we have already seen an increase in transactions as activity ramps up following the UK General Election result.”
As for exactly how prices will rise, Faisal Durrani, who heads London Commercial Research, projects that “headline office rents will rise by 15.7% in core West End locations such as Mayfair and St James’s by the end of 2024”, while “we forecast rents in the City core to grow by 20% in the next five years.” This could lead firms to investigate cost-effective ways of establishing a London presence. One strategy to be utilised could be booking a virtual office in London, allowing companies to enjoy the prestige of a London address without permanently basing themselves in the area. A virtual office would still let users book a day office or meeting room in London as necessary.