Investment flows into the Central London office market has hit £2.2bn since the beginning of October, according to the latest research from Knight Frank.
London’s higher yielding office assets relative to Europe’s gateway cities continued to attract global capital. US investors were the most active, responsible for 47% of investment deals (£1bn), followed by UK investors who accounted for 29% (£638m) and South East Asian investors comprising 11% of total volumes (£242m).
This follows a busy Q3 for the investment market, which saw £3.8bn in turnover in line with long-term average levels. In Q3, European investors accounted for 35% of total volumes compared to 22% from the US.
Leasing activity continued the upward trajectory witnessed during recent quarters. Since the end of Q3 there has been 1.4m sq ft of take up over 115 deals. The Telecommunications, Media and Technology (TMT) sector was a major driver of demand, accounting for 45% of take up, followed by professional services firms (31%) and financial services companies (9.3%). Demand for best-in-class offices saw 72.8% of take up concentrated within the prime office market which consists of new or recently refurbished stock. This flight to quality is also driving rents up in the core markets.
The largest completed leasing deals included Allen & Overy’s 254,000 sq ft letting at 1-2 Broadgate in Liverpool Street, Snapchat’s agreement to occupy 113,634 sq ft at Bloom, Clerkenwell and Daily Mail General Trust’s 110,000 sq ft letting at The Barkers Building (Northcliffe House), Kensington. With 3.2m sq ft currently under offer, Knight Frank estimates total take up in Q4 to hit 3.1 sq ft, taking it above the long-term average for the first time since Q1 2020, when the global pandemic impacted the market.
Shabab Qadar, London Research Partner at Knight Frank, commented: “Stronger levels of transactions from private equity companies at this stage of the cycle suggest rising expectations of growth in the London office market. Larger pools of international capital are targeting grade-A London offices given the attractive yields compared to other European gateway cities. The big investment deals have been driven largely by US investors attracted by the relatively stronger outlook for the London economy and rising occupier demand for best-in-class buildings.”