The London office investment market has experienced a turgid first half of the year with volumes forecast to be down 13.7%.
Cushman & Wakefield anticipates that £8.3bn of transactions will have taken place in the first half of 2018, down on the £9.6bn during the same period last year.
The figures were dragged down by a dismal first quarter when only £2.2bn of transactions took place. Volumes in the first three months were around 37% down on the five-year average and 56% down on the first quarter of 2017.
However, a more bullish second quarter is due to total over £6.1bn of deals, 33% above 2017, off the back of several large sales to Asian investors.
This is predicted to herald a “robust”’ third quarter in central London with the potential £1.3bn sale-and-leaseback of Goldman Sachs’ new City headquarters expected to contribute.
“We expect to see similar levels of activity over the course of this year as we did last year. There is significant investor demand for London from a wide cross-section of parties,” said Martin Lay, joint head of London capital markets at Cushman & Wakefield.
“In London there doesn’t seem to be any upper lot size and liquidity remains strong for those large lot sizes, so I think we’ll continue to see those transactions take place.”
In Q2 the City was again the powerhouse behind investment into London, with volumes hitting more than £3.8bn, 52% up on the second quarter in 2017.
These sales included the £1bn payday for British Land and its Singaporean partner GIC after Hong Kong’s richest man Li Ka-shing’s family trust stepped in to buy Swiss bank UBS’s headquarters at 5 Broadgate through CK Asset Holdings after talks with Abu Dhabi sovereign wealth fund Mubadala collapsed.
Other notable sales to Asian investors included the £650m sale of Ropemaker Place to South Korean firm Ho Bee Land, and Korea Investment & Securities circa £200m purchase of 70 Mark Lane from Mitsui Fudosan.
The West End has been far less active, however, with investors holding on to prized assets. Volumes in Q2 fell 28.6% to £1.5bn year-on-year.
The few rare sales in the West End included Belstaff House on New Bond Street, W1, sold for £180m to a Singaporean investor, and the sale of 5 Strand (above), an office block let to Westminster City Council, for more than £90m to Indian developer ABIL Group. ABIL is known for its hotel development in India, including the St Regis Mumbai, W Goa, Westin Pune and Le Meridian Nagpur.
Across central London £1.2bn is under offer and projected to complete in Q3.
“It’s clearly been a really positive quarter for the market, particularly the City,” Lay added.
“There is a continuing dominance from Asia, but there are subtle differences to previous years.
“There has been a dominance from Hong Kong, but now we’re seeing a much wider spread of interest, clearly South Korea has been a rich source of capital, but also Singaporean and other sources of investors, which are providing a robust and competitive environment when sales are coming forward.”
However, the influx of new global capital to the market has meant deals are taking slightly longer and Lay admitted that “a number of deals that could have fallen into Q1 ended up dropping into Q2” due to the extra time taken over sales processes.
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