As anticipated, the Covid-19 liquidity crunch continues to hamper turnover in London’s West End office market, with just £64.4 million exchanging across seven transactions in June 2020.

This brings cumulative investment volume for the first half of the year to £1.24 billion across 45 transactions; 64 per cent below the previous five years’ average by volume. More tellingly, across the whole of Q2, which broadly matches the period of ‘lockdown’, we recorded only £166 million of transactions, 91 per cent below the five year average and a stark contrast to the 2015 peak of £2.9 billion.

While investment activity is notably low, there are emerging signs of a market building momentum once more, with greater engagement from both buyers and sellers. Challenges still exist and caution prevails, but we head into Q3 with an estimated £1.1 billion under offer. The progress of these deals warrants close scrutiny over the summer.

A distinctly high proportion of properties (25 of 62) that are currently either under offer or have exchanged this year have not been openly marketed. In keeping with this trend, five of the six other transactions that took place during June were all off market. These included 108 New Bond Street, which was acquired by a private Hong Kong investor for £19 million, and 79 Wardour Street, which Gold Group International sold to Hong Kong group MCL for £5.8 million.

We foresee the majority of near-term market activity continuing to take place off market on the same basis, with vendors wanting to hold a stronger hand in negotiations and not risk their exit being seen by the buyers as a sign of distress.

In relative terms, however, we still expect to see very few new opportunities, with vendors preferring to adopt a wait-and-see approach, and for pricing to remain accordingly robust. This will especially apply in the case of core, well-located assets and those providing secure, medium-to-long term income, where we expect prices to surprise on the upside.

Despite potential headwinds, there remains a lack of breadth of evidence to suggest that there has been a material price adjustment for prime assets in the West End. If anything, we have seen investors' focus intensify on this space, driven by a flight to quality and even lower yielding alternatives.

As such Savills prime West End yield remains at 3.75 per cent, but we would note upward pressure on yields for secondary assets, especially those with near-term leasing/development risk.

Further information

Read more: West End Investment Watch