London is set for an increase in commercial real estate investment in 2020 as international investors target the capital’s high-yielding office market, according to the latest research from Knight Frank.
The agent, which this morning launched its annual London Report, said global investors had increased the total capital targeting London commercial assets to £48.4bn, a 21% rise on 2019 and £2bn higher than 2018. However, with just £2.3bn of buildings for sale, investors will face strong competition, which is expected to drive values higher in 2020.
While a flood of money is expected in London in 2020, transactional figures for 2019 were down by 15% on 2018, with totals reaching £13.9bn, compared with £16.8bn a year earlier.
Nick Braybrook, head of London capital markets at Knight Frank, said: “Despite the fall in activity, London remained the second-largest market for commercial office real estate investment in 2019, topped only by Paris and ahead of New York, Hong Kong and Berlin.
“London’s stability and global status is attracting international investors who see a competitive economy, strong occupier market and high office yields, compared with other global cities. We expect the sheer weight of international demand for London assets to push prices on, and we have already seen an increase in transactions as activity ramps up following the UK General Election result.”
The biggest uptick in investment in 2020 is set to be seen from Asia Pacific, which Knight Frank says has some £12.5bn of investment capital targeting London real estate, a 35% increase on 2019, with Europe the region with the second-largest increase in investment potential, up some 29% to £5.3bn (see table)
“One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity,” said Faisal Durrani, Knight Frank’s head of of London commercial research. “New office development has not been able to keep pace with this demand, and almost half of the space currently under construction is already spoken for. This supply crunch is most significant for those businesses seeking large amounts of space. We are tracking 30 businesses seeking more than 100,000 sq ft, yet there are currently just 16 buildings in London that can service these requirements.”
He said the supply shortage was helping underpin Knight Frank’s rental growth projections over the next five years. It expects headline office rents to rise by 15.7% in core West End locations by the end of 2024, with rents in the City core growing by a whopping 20% over the next five years.
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