London Commercial Property Market Set For a Boost in 2020

London Commercial Property Market Set For a Boost in 2020

updated February 24, 2020
London Commercial Property Market Set For a Boost in 2020

According to the latest research from Knight Frank, London is set for an increase in commercial real estate investment in 2020 as international investors target the capital’s high-yielding office market.

Global investors have increased the total capital targeting London commercial assets to £48.4 billion, a 21% rise on 2019 and £2 billion higher than 2018. However, with just £2.3 billion of buildings for sale, there will be strong competition amongst investors, which is expected to drive values higher in 2020.

Nick Braybrook, Head of London Capital Markets says: “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.

“International investors are attracted to London as a safe haven, offering political stability and positive growth prospects, as well as an attractive exchange rate and high yields.

Office yields are amongst the best in the world and certainly the most favourable when compared to key European centres.

In the City of London average yields are currently 4 per cent, while in London’s West End they stand at 3.5 per cent. Comparable yields in leading European cities such as Paris, Frankfurt and Amsterdam are 3 per cent. And despite the prospect of London yield compression this year, office yields still outweigh most global bond offerings.”

Faisal Durrani, Head of London Commercial Research says: “One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity. 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.

“Indeed, the supply shortage is helping to underpin our rental growth projections over the next five years.”