The interest rate pause announced last week by the Bank of England may be the start of relief for real estate investors. We will hopefully see the price of debt peaking out and the consequent fall in values will begin to bottom out, which will provide more certainty and confidence within the market. However, inflation still remains high, and we haven’t been totally reassured that interest rates won’t rise again, so we’re not out of the woods yet. 

Investors seek liquid markets, with UK is now the most favoured investment geography, according to Savills latest Europe & Middle East Investor Sentiment Survey, up from third last year. Where London is concerned, investment has always been predominantly inbound from overseas, whether from the US, Asia or more recently Europe and the Middle East. Recent data points to investment transaction volumes halving these past 12 months from what we have been more accustomed to. It’s worth pointing out, however, that so far this year London has been the destination of choice for international capital – with Paris a close second.

Overall, transactions volumes for central London will be down this year, peaking out around £10 billion, compared to £20 billion in 2017 for example, but this we expect these volumes to improve in 2024.

Within the West End and the City, prime and core office buildings that are well-let and with suitably “green” credentials continue to receive the most interest from investors. Transactions in the prime sector are beginning to show signs of stabilisation which is where a substantial amount to the inbound capital is focused. However, for the owners of non-prime, second-hand stock with poor sustainability credentials, there is likely to be ongoing downward pressure on pricing in the short term at least.

Those investors who have been buying in the market so far this year have been benefitting from a sizeable discount compared with 24 months ago. In the West End, prices on prime assets have fallen perhaps by about 5-10 per cent, though it is a more nuanced market with pockets of resilience on some sub-markets over others. In the City, the discount for the same Ccore assets is between 10-20 per cent. The message to these trophy hunters is that if you are waiting for the bottom of the market to come before buying – you may well have missed it.

Further information

Contact Stephen Down

Interest rates have potentially peaked. What now?