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Tight supply keeps heat on for London office investment

Asian property investors doubled their share of investment into London in the first half of 2020. The UK capital continues to be a “prime target” for international real estate investors said BNP Paribas Real Estate. The firm has assembled data on recent transactions and made the observation as the UK government declared that the country has now officially entered a technical recession following the pandemic lockdowns.

BNP Paribas Real Estate said that its data shows global capital is actively seeking investment opportunities in London. Investors from Asia spent £628 million (€694 million) on real estate in London in the first six months of 2020. This is a 74.4% increase on the same period in 2019 according to BNPPRE.

Asian investors were also responsible for 31.4% of all real estate transactions in Central London during Q2, compared with just 9.8% in the same period last year.

A number of high-profile deals were done as the UK’s lockdown eased, said BNPRE including One New Oxford Street, WC1, which was bought for £174 million by Singapore-based Sun Venture. Meanwhile, US private equity group Stars REI acquired 103 Mount Street, W1 for £80 million.

Fears of price falls unfounded

BNPPRE said there have been fears that property prices would fall owing to the global pandemic, which in turn might have halted investor activity and caused uncertainty regarding pricing in risk. However, the firm says there is little evidence of slippage in the prices of prime assets. Quite the contrary it seems. The supply of investments placed on the market has diminished while the volume of capital targeting London property has remained high resulting in competitive bidding for some assets.

Simon Glenn, co-head London markets, BNP Paribas Real Estate

“In 2019, £9.3 billion was spent on real estate in London by international investors. This is likely to slow this year but levels of international demand remain high while UK buyers have fallen away. As a result, international investors have accounted for almost three quarters of all transaction volume so far in 2020,” said Simon Glenn, co-head London markets, BNP Paribas Real Estate.

He stated that London has proved resilient against the backdrop of the global pandemic as well as uncertainty surrounding Brexit.

Glen also added that although more tenant space is being released to the market, the overall vacancy rate is still below the long-term average of about 6.5%.

Delayed completions restrict supply

It also appears that construction delays have also helped to restrict supply and maintain prices with some 2020 completions being carried over to 2021. Central London is scheduled to see about 3.8million sq ft (353,000 sq m) of new stock delivered over 2020. More than half (57%) of which is already pre-let, says BNPRE.

Glen says that the constrained development pipeline and “stubbornly-low” grade-A vacancy will help to ensure London continues to be seen as a safe haven offering long-term value. And he emphasises that the main concern is not investor appetite but lack of quality assets available to them with owners reluctant to sell prime assets while pricing is uncertain and there are uncertainties about future of office space.