Nobody’s going to pretend that 2020 was easy for London’s investment and occupier markets. After Boris Johnson’s election win in December 2019 removed some uncertainty, we saw a surge in activity in the first few months of the year as investors and occupiers committed to the UK. This ground to a halt in March as global lockdowns took hold.

There were signs of light however, particularly later on in the year: the West End commercial investment market, for instance, saw its best final quarter since 2014 with £2.87 billion transacted, 38 per cent above the five-year Q4 average. This helped West End volumes end the year only 9 per cent down on 2019, although it wasn’t quite enough to bring up the total numbers: overall figures for the full year show that total investment volumes across central London reached £9.2 billion, down 30.7 per cent on 2019. 2020 central London office take-up, meanwhile, reached 4.3 million sq ft, down 60 per cent on 2019.

Long-term demand for London from both occupiers and investors should remain as the key drivers of the market –  transparency, stability and strong fundamentals relative to other global cities – endure, but there is the prospect that things could get worse before they get better this year while the market remains hamstrung by wider events.

We anticipate occupier leasing activity will remain low in the first quarter of 2021, before improving if ‘Lockdown 3.0’ is lifted in the spring. While for most tenants it’ll be a case of deferral rather than cancellation and they’ll still come to the market in time, this restraint may feed through to the investment markets, where we may see sluggish levels of activity initially before they pick up in H2.

The central London market has always been popular with international investors: non-domestic buyers were responsible for 76 per cent of investment volumes in 2020 and we expect to see similar this year. 2021 is likely to see purchasers increasingly focused on the basics: high-quality core offices under a decade old in Zone One with strong transport links. The more adventurous may venture outside central London, particularly those seeking development opportunities. Others may take the opportunity to use lower occupier activity to negotiate prices downwards.

London is still pre-eminent global city and long-term its prospects are solid despite the current challenges. The city’s gravitational pull for global talent, and therefore many international companies, hasn’t gone away. Investors will continue to be active in the market, although over the coming year it’s likely that most will be looking for safety in the core.

Further information

Contact Stephen Down

West End Investment Watch