Lack of supply to hamper London office investment

Over €2.6 bn of big-ticket office stock is hanging over the London market but a large portion may already be about to trade, leading to predictions of limited supply for the rest of the year.

PropertyEU's scan of the office investment market in London suggests there will be significant opportunities for office owners to take profit in the second half of 2013 from opportunistic sales as demand continues to outstrip supply.

We tracked just over €2.6 bn of large office properties on the market in the UK capital at the moment. But about a quarter of the volume is represented by Blackstone's 50% stake in British Land's Broadgate scheme. Market watchers say Norway's giant Government Pension Fund Global is the frontrunner to acquire the stake for some £600 mln.

Similarly, Korea's Samsung Asset Management is poised to debut in the London office market by exchanging on the acquisition of 30 Gresham Street from Singapore's GIC for £310 mln.

If these two major deals go ahead this will leave limited stock for the increasing number of sovereign wealth funds or other heavyweight institutional player from Asia is entering the market on a weekly basis. After years of practically not development the supply of quality assets is not keeping pace with the inflow of all-cash equity players. This has driven pricing higher and yields to historic lows.

In March Jones Lang LaSalle steered through the largest sale in the City of London for several years by tapping into this Asian equity stream. Acting on behalf of vendor British Land, JLL sold the 53,000 m2 scheme to AXA Real Estate for €540 mln.

AXA RE was representing a European and two unidentified Asian investors. One of the latter was Gingko Tree Investment, a subsidiary of China's State Administration of Foreign Exchange. The 20-storey Ropemaker Place building was completed in May 2009 to an Arup Associates design. It comprises 53,000 m2 of Grade A office accommodation with supplemental retail and ancillary accommodation. The building is located close to the new Crossrail entrance at Moorgate train and Underground station.

Deals like this highlight the strong demand for top-quality London offices but the shortage of available stock is likely to act as a brake on investment volumes, according to James Beckham, Head of City Investment at JLL. ''The rest of the year could be tighter than 2012,' he said. 'We will be looking at things off-market as sometimes you can knock on a owner's door and get a surprisingly positive response'.