We’re just over half way through 2021 and, while we can say that today’s central London commercial investment market is undoubtedly looking more positive than it was at the same point last year, there remain some obstacles to be overcome.
Where do we stand at the moment? Both the key markets have staged a recovery after 2020 although it’s the City market that’s leading the pack: volumes in the City reached £2.99 billion in H1, a 64 per cent increase on H1 2020. Meanwhile, the West End hit £1.55 billion in the first half of this year, a 25 per cent rise on the same period last year.
Most of this activity took place in Q2 as the UK emerged from its most severe lockdown. The number of assets being marketed and the number of bids received on them have both steady risen over the last few months. Competitive bidding has resulted in prime office yields hardening to 3.25 per cent in the West End and 4 per cent in the City.
In H2 two major obstacles remain. Firstly, the number of assets being openly marketed. As of early July, we are tracking approximately £5.9 billion known to be available on the open market but much of what was traded in H1 took place off-market, frustrating the aspirations of investors who were looking to deploy into London but missed out.
Things seem to be improving now, and vendors are showing more confidence in the prospects of asset liquidity, as indicated by the fact that over 20 per cent of currently available stock was launched during June. Several of these assets have already gone under offer or received bids.
Secondly, many international buyer groups still remain unable to return to the UK market to tour potential purchases. A consequence of their home nation’s travel and quarantine restrictions as much as the UK’s, this has resulted in the proportion of deals by overseas investors – particularly those from Asia Pac - falling this year: Asian investors have accounted for just 21 per cent of deals by volume in the City and 13 per cent in the West End in the year to-date.
Until 'air bridges’ are established we are unlikely to see these buyers return, and that may not be until the start of 2022. However, this isn’t an issue peculiar to London, and in fact at the moment the UK is actually ahead of the US in terms of the volume of cross-border investment received this year.
So while the signs for the rest of 2021 are looking good, it’ll still be a while before we can say the market is back to normal, but investors have largely grown to live with the pandemic – the hurdles they face are logistical more than hesitancy to deploy capital. We therefore expect volumes to rise across London over the rest of the year and continue to recover into 2022.
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