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Record Q1 London commercial property investment

Foreign capital continues to flow into Central London as quarterly volumes reach £4.13bn

  • Highest level of first quarter Central London investment ever
  • City & Docklands transactions amounted to £3.31bn in the first quarter of 2014, a record result
  • West End Q1 deals totalled £824m – nearly a 20% decrease compared to Q1 2013

Cushman & Wakefield, the world’s largest privately-owned real estate services firm, has revealed there were £4.13 billion-worth of Central London commercial property transactions in Q1 2014 – the highest level of Central London investment ever recorded in Q1.

In the City & Docklands, total investment volume in Q1 2014 reached £3.31 billion across 32 transactions – this is a record Q1 result.  However, total investor volume is hugely reliant on a small number of very large transactions.

Of this total volume, St Martins – the sovereign wealth fund from Kuwait – completed the acquisition of More London for £1.7 billion; one of the UK’s largest commercial property transactions ever.

Once again, overseas investors remain the most active and accounted for 77% of investment volume in the City & Docklands.  Even if the More London transaction is removed from statistics, foreign investors were still involved in half of all deals.

This quarter saw the return of UK investors who have been the most active by number of transactions completed.   There were 23 UK purchaser transactions during the quarter which equated to a volume of £765.5mn and represented 23% of market volume.  This also reflects an average transaction size of £33.28mn.

UK vendors have generally dominated Q1 with the sale of assets which include 1 Poultry by a UK private investor to Perella Weinberg and AXA REIM sale of Sixty London to Hines on behalf of a new German fund.  UK vendors accounted for approximately [21 deals, 26%, £866mn] of sales.

Turn-over for the second quarter of 2014 is likely to be strong with approximately 25 transactions currently either under offer or exchanged, amounting to an additional £800mn of turnover.  

The top five deals for Q1 2014 in the City & Docklands accounted for £2.35 billion, or 71% of total investment; see below table:

Bill Tyser, partner in Cushman & Wakefield’s City investment team, said: “From a global perspective, City of London prime yield profile remains attractive and there continues to be a considerable weight of money both domestic and international facing the market.  As the second phase rental recovery builds, coupled with positive outlooks on the UK economy and employment growth into London we can expect continuing strong activity and further yield compression as we move through 2014.”

London’s West End saw the highest annual turnover on record in 2013 at £8.2 billion.  Following that, Q1 2014 has got off to a steady start with transaction volumes totalling £824 million across 32 transactions (average lot size £25.75 million).  This is a 19.6% decrease compared to Q1 2013 which saw £1.026 billion in 41 transactions.

While the turnover figure for Q1 is down on last year, this is a consequence of a shortage of stock as opposed to indicating any lack of demand.

Notable transactions this quarter include the purchase of 141-142 New Bond Street, W1 by a UK Private from an overseas investor for circa £75m; the purchase of Waterstones, Piccadilly, W1 by Meyer Bergman from IVG for £67.5m; and the purchase of Jaeger House by Shaftesbury from Derwent London for £30.75m, reflecting a NIY of c. 2.53%.

From the buyer perspective, Q1 2014 saw the UK investor account for 50% of purchaser volume. That said global investors are also very prevalent with buyers from the Far East, Continental Europe, North America and the Middle East all making purchases in Q1 this year.

Mike Tremayne, Head of Cushman & Wakefield’s West End Investment team comments: “The relatively low level of investment opportunity in early 2014 has limited transaction volumes for Q1.  However the high levels of demand and the weight of capital in the London investment market remain as strong as ever. There is very much the view that continuing demand in both the occupational and capital markets will maintain the downward pressure on yields.”