Grosvenor predicts recovery for London office returns in 2010

New analysis from Grosvenor Fund Management predicts a sharp recovery in London office returns starting in 2010 and generating 12-13% pa returns over five years. This follows capital value declines in excess of 45% since mid 2007.

Rents are expected to increase by about 60% from their trough through 2011-2016. Supply is expected to be very constrained: 2009-2013 will see the lowest level of new offices delivered in London West End and City since records began in 1986.

Scott Rowland, fund manager for Grosvenor’s London Office Fund commented: 'Yields have reached all-time highs in real terms and despite the current weak occupational market, London offices are attractively priced. Investors are already returning to the market and yields are starting to fall.

'However, asset specific returns can vary widely and investors need strong property expertise and a comprehensive knowledge of the market to adequately appraise risk and select the best stock.'

Grosvenor Fund Management is seeing significant interest from investors in accessing the London office market. Scott Rowland continued: 'This is a very interesting time for investors to follow one or both of two strategies: a long-term play of buying cheap and holding, or a shorter-term more tactical option to catch the recovery. For investors looking at a tactical play, we think the most effective strategy in the UK recovery cycle would be a targeted London office investment programme.'

To take advantage of this opportunity Grosvenor Fund Management is looking at launching a short-term tactical fund vehicle designed to benefit from the strong cyclical growth phase that the London office market is entering. The fund will look to maximise returns by investing, adding value and divesting during the growth phase.