Overseas investors dominate London offices
Overseas investment continues to dominate London's office
market, according to Jones Lang LaSalle.
Despite eurozone concerns, the first
half of 2012 saw investment in the capital's office market reach £6 billion,
with over 75 per cent of that coming from overseas. Indeed, Asian capital
accounted for 27 per cent of the total volume of transactions, while the
overall amount marked an 8 per cent rise in activity compared to the first half
Damian Corbett, Head of London Capital Markets at Jones Lang
LaSalle, said: "In the West End a lack of supply continues to characterise the
market. Strong competition for core assets is keeping pricing buoyant and
demand continues to grow for good quality, well-let assets as well as short
income asset management opportunities. The City market is currently
experiencing a yield divergence between prime and secondary stock, with a
flight to quality putting further pressure on yields. However, the discount on
secondary product is widening as the contagion of the Eurozone banking and
currency crisis has caused investors to inject more risk into their pricing."
In the leasing market, active demand remains relatively
constrained. However, more occupiers are starting to emerge with potential
future requirements and overall registered demand is now six percent higher
compared to 12 months ago which bodes well for when the macroeconomic position
improves. While actual take-up remains below average, with this additional
potential demand and an eroding supply pipeline, occupiers who wish to move
have an increasing dilemma; act sooner than desired to secure quality space at
reasonable rents in the best locations or be faced with increasingly limited
choices at higher rents.
Neil Prime, Head of Office Agency at Jones Lang LaSalle,
said: "The growth in pent up occupier demand in London will inevitably start to
outbalance supply levels. The key question is when will this demand activate.
We are starting to see initial signs of such activity where occupiers
understanding the lack of future supply are beginning to commit to secure their
future occupational needs, however such activity at present is relatively
sector specific, particularly in Insurance and TMT."
Prime concluded: "Occupiers are also migrating from the West
End to locations that provide high quality office product at reduced total
occupational costs as the search for quality and value begins to gather pace.
With every transaction on grade A space our prime Grade A markets draw closer
to a tipping point. When this happens we will see a rapid improvement in rental
growth and a reduction in choice presenting a conundrum for occupiers; the
supply and value options available today in a period of economic uncertainty
against higher costs and lack of choice as the economic cycle improves."