Investor uncertainty about the upcoming UK referendum on membership of the European Union was a major contributing factor as real estate estate investment activity for Central London during the first three months ended down by a third compared with the previous quarter, Cushman & Wakefield has said.
Central London investment activity totalled £3.8 bn (€4.9 bn) in the first quarter of 2016, down against the previous quarter and the same point in 2015, as the impending referendum impacts on investor behaviour, according to C&W research published this week.
Overall Central London investment volumes fell by just over a third quarter-on-quarter, with around £1.9 bn invested in both the West End and the City. Near identical totals masked very different activity in the two markets. Whereas City & Docklands investment volumes halved quarter-on-quarter, and were 20% below the 5-year quarterly average, West End volumes were down just 10% quarter-on-quarter and almost on a par with the 5-year quarterly average.
While activity was down from both overseas and domestic investors, the decline in total volumes can be largely attributed to a moderation in international capital. Quarter-on-quarter, overseas investment declined by over 40% compared to a decrease of 20% for UK investors.
Asian investors were the most active purchasers and in fact were the largest net investors during the quarter (+£500 mln). Chinese companies continue to drive this activity, with a positive investment of £291 mln, albeit a slowing in volumes was evident over the quarter.
Investment volumes from Europe and North America were also positive, at £336 mln and £267 mln respectively, with for example Pontegadea and Deka Immobilien both making significant purchases this quarter (see table). UK investors continued to divest from the capital to the tune of -£876 mln while Middle Eastern investors were also net sellers (-£25 mln).
James Beckham, head of London Capital Markets, Cushman & Wakefield, said: 'Some potential purchasers of property are undoubtedly taking a cautious view, holding off decisions until a level of certainty returns to the market post-referendum. The positive effect has been a number of previously-frustrated purchasers taking advantage of lower competition for stock to finally gain a foothold into the London property market, a good example being Pacific Eagle’s purchase of 71 Queen Victoria Street. We don’t expect the investment pause to last beyond the referendum and anticipate transaction volumes in the second half of the year to increase significantly as pent-up demand for London assets is unlocked.'
Elaine Rossall, head of London Markets research, Cushman & Wakefield, added: 'We expect overall transaction volumes to be down in the second quarter in the run-up to the referendum, many investors take a long view and will invest in what they perceive is the right asset at the right price. Already this quarter, we've seen Aldgate Tower change hands for £346 mln – a larger sum than any investment in Central London during the first quarter of the year.'
