Commercial real estate investment volumes in London have recorded two consecutive quarterly increases, according to analysis from BNP Paribas Real Estate.
The final quarter of 2023 saw investment volume in the capital city surge 23% to £1.5 bn (€1.76 bn). Provisional analysis of Q1 2024 reveals another jump to the region of £2.5 bn. While both quarters are still below the long-term average, the data indicates the start of the recovery and a new investment cycle.
Charlie Tattersall, senior associate director, research, commented: 'UK real estate markets remain highly-driven by interest rates movements, but attractive fundamentals, including the anticipation of the first base rate cut in June, and signs of a trough in pricing, are gradually bringing more investors back to the market.
'Almost two years of outward yield shift means some market segments are offering decade-high income returns. Combine this with the window for capital value declines closing, this represents more evidence of the attractiveness of today’s pricing and so capital which has been on the side lines is starting to play.'
Fergus Keane, head of London capital markets at BNP Paribas Real Estate, said: 'Confidence has been missing for two years, but if you look at our data on the market, two consecutive quarterly increases in investment volumes certainly signals the start of its return.
'It’s often only with hindsight that you can see when one cycle ends and another begins, and the trigger is often a spate of deals that turns sentiment and begins to build real momentum. It’s clear to me that some of those moments have arrived.'
Big deals
Keane pointed to series of market activity which support the view the market is liquid and the process of price discovery has completed. These include Blackstone’s £230 mln deal at 130-134 New Bond Street at sub 4%, which he described as a 'boon' for the retail sector.
He also cited BT group’s £275 mln sale of the BT Tower to MCR hotels, and Nomura’s £64 mln purchase of 55 St James’s Street at 4.25%. Meanwhile, Royal London’s £192.5 mln purchase of a 50% stake at British Land’s 1 Triton Square suggests a shift in sentiment.
Keane added: 'There is naturally still hesitation in the market and some are holding out for further evidence that the challenges of 2023 are behind us. A small proportion of investors appear to believe capital values will soften a little further.
'Another slice appears to be anticipating more bank-led sales at bargain prices, while others are waiting for stock levels to rise, given the fact that some potential sellers think they’ll get a better price later this year. But the activity in the market is increasingly contradicting these positions and I am confident that we are now at the start of a new investing cycle.'
BNP Paribas Real Estate also pointed to strong rental prospects across the office sector which will support the early signs of recovery.
Tattersall concluded: 'It remains the case that those who are able to overcome financial market volatility and deploy capital are likely to reap the rewards of inflation-beating rental growth in the years to come. Early movers that are able to offer best-in-class business space into a recovering market stand to make sizeable gains as borrowing costs fall.'
