CBRE: central London investment volumes slump to eight-year H1 low

Whilst undoubtedly negatively affected by the on-going political uncertainty, investment volumes are also being constrained by a lack of available stock and a general fall in cross-border flows, CBRE says.

The first quarter of the year saw three deals of over £100m, led by Citibank’s acquisition of their Canary Wharf HQ for c. £1bn. By contrast, there were five deals larger than £100m in Q2 –the largest of which saw a subsidiary of Wing Tai acquire 8 Salisbury Square, EC4 for £226m.

Domestic purchasers represented 42% of the market in H1 2019, the largest proportion of any half-year since 2011. The vast majority of UK purchases have been in the sub-£50m size-bracket. As such, when measured in terms of number of deals, UK-based investors have represented 58% of all transactions so far in 2019.

Over the course of the last 12 months, Asian investors have been the most active overseas buyer type, representing 26% of all deals, closely followed by North American investors (19%).

Take-up

Take-up in Central London for Q2 2019 was 3.0m sq ft, a quarterly increase of 10% but down on both the corresponding period in 2018 (3.5m sq ft) and the 10-year quarterly average (3.3m sq ft).

This took the H1 2019 total to 5.8m sq ft, which represents a 9% fall on H1 2018.

Take-up in Q2 was boosted by three pre-lets of over 100,000 sq ft, the largest of which saw the European Bank for Reconstruction & Development acquire 358,700 sq ft at Five Bank Street –the largest deal in Canary Wharf since 2016.

Large pre-lets also transacted in the City (123,300 sq ft to Brewin Dolphin at 25 CannonStreet) and in the West End (102,600 sq ft to G Research at 1 Soho Place). In total, pre-lets and take-up of new completed space accounted for 40% of all take-up in Q2, as occupiers continued to focus their requirements on high-quality space.

Led by the two largest deals of the quarter, the banking and finance sector represented the largest proportion of take-up in Q2 at 30%. The business services sector represented 26% of take-up in Q2. Business services take-up was once again driven by the flexible office sector. A total of 419,000 sq ft across 21 deals by flexible office operators completed during the quarter.

Availability

Availability in Central London fell for the second consecutive quarter, decreasing by 5% over the course of the quarter to 13.0m sq ft, the lowest level since Q1 2016. This represents a year-on-year fall of 7%.

Both second hand and new completed availability saw falls of 5% to 9.0m sq ft and 1.4m sq ft respectively. The strong levels of pre-letting activity saw the availability of early marketed space (space which is under construction and will be ready to occupy within 12 months) fall by 7% to 2.5m sq ft.

Under offers

Under offers in Central London continued to increase into Q2, rising by 9% to stand at 4.1m sq ft. This follows a rise of 10% in the previous quarter. Under offers in Central London have only risen above 4m sq ft on three previous occasions in the last 10 years.

The largest unit under offer at the end of Q2 was at One Braham, E1, where 326,100 sq ft was under offer. At the end of Q2, there were an additional four occupiers under offer on more than 100,000 sq ft –two in the City and two in the West End.

Under offers increased in the City (+16%), West End (+2%) and Midtown (+233%) but fell in Southbank (-6%) and Docklands (-86%). Under offers were above their respective 10-year averages in the City, West End and Midtown and below-trend in Southbank and Docklands. There were 45 units with over 20,000 sq ft under offer across Central London at the end of Q2 (Q1: 41) of which 25 were placed under offer during Q2.

james.wallace@realassetmedia.com