Central London investment activity declines further in Q3

A total of £1.2 bn of transactions took place during the third quarter in the Central London commercial property investment markets, according to a research report issued by Cushman & Wakefield this week. The figure represents a 40% drop on the second quarter and about 20% of the total turnover in the third quarter of 2007, C&W said in its Central London Investment Volumes report for the third quarter of the year.

Of this turnover approximately 80% of the market was attributed to overseas investors and of this some 40% of the total turnover for the quarter was represented by German fund transactions.

The West End market registered a reduction of 60% in transaction volumes, with a total of £690 mln being transacted in the third quarter. The City market remained fragile during the quarter with transactions down 50% on the second quarter and representing 10% of the Q3 turnover achieved in 2007. A total of 16 deals were completed totalling around £550 mln.

Prime yields maintained a range of approximately 5.75% - 6% at the beginning of the third quarter. However, towards the end of the quarter a number of prime buildings failed to sell at yields under 6% as a result, there is a view that prime yields have now drifted out to 6% at best.

Bill Tyser, partner, City Investment at Cushman & Wakefield said: 'There has almost been a complete lack of transactional activity in the secondary market especially for buildings with short-term income stream and those which require considerable capital expenditure on lease expiries. The price correction on these properties continues but generally there remains a stand-off between vendor and purchaser in terms of bid-offer spreads.'

Tyser continued: 'The outlook remains one of further correction especially in the secondary market. Recent market events on Wall Street and in the City of London are likely to further exacerbate the current concern over supply and demand of office accommodation and the potential impact on rental levels as well as making the ability to raise finance for investors both extremely difficult and expensive.'