Investors have turned bullish on London offices after the December general election delivered a conservative majority and more certainty on Brexit.

Lesley Chen Davison, CIO, Seaforth Land

Lesley Chen Davison, CIO, Seaforth Land

Lesley Chen Davison, chief investment officer at Central London office specialist Seaforth Land, said that the London office market ‘is looking very positive’ after several years of uncertainty holding investment back.

Speaking at an event on Tuesday in the UK capital organised by the Commercial Real Estate Finance Council and Simmons & Simmons, Chen Davison said: ‘Last year was slower in terms of volume of transactions but I’m sure many of you saw the flurry of leasing in Q3 and Q4 and the (higher) volume of investment deals over the 4th quarter.’

She believed it was because investors had calculated that ‘the election was going to go the right way - and it did. For a lot of investors, the Corbyn fear was much bigger than the Brexit fear.

‘So I’m quite bullish. We believe rents in the office sector will continue to go up and yields will come in.’

After the period of pent-up demand, London is now ‘a classic cyclical play. After the referendum there were very few planning permissions being granted and very few planning applications made... Now there is just not enough supply'.

CBRE last week estimated that on average, all new office product is 75% prelet months before practical completion. Recent prelets at large developments and refurbishments like The Post Building in Holborn, HB Reavis’s Bloom Clerkenwell and Derwent London’s 1 Soho Place are achieving historically high rents for their submarkets of £90 - £100 per sq ft.

Chen Davison suggested to the audience of mainly lenders that they had generally been reluctant to finance office investments unless they were fully stabilised assets but she hoped that they would now start funding active management projects: ‘I would say that is a fantastic opportunity because there is a higher likelihood of tenants renewing space in this short supply market.’

Malcolm Frodsham, founder and director of Real Estate Strategies, said that after a year when UK investment volumes halved from their peak, UK offices start 2020 ‘finely balanced'. He agreed one possibility is that yields will start to compress - if Brexit negotiations this year go well.

Pointing out that London prime cap rates of circa 4% are in the middle of the range across European cities he suggested: ‘London is the deepest, most liquid and transparent market in the world so you don’t expect that. A lot of investors are looking at this and thinking that London is now going to move.’

This week one of Germany’s biggest real estate players, Union Investment, released a survey of 150 institutional property investors.  The biggest change in the survey’s ‘Investment climate barometer’ was a 5.5 point jump to 64.4% of investors intending to invest in the UK, ‘exceeding the sentiment index for the German market for the first time in a long while'.

Olaf Janssen, the group’s head of research, said: ‘Increased political stability and planning security in the UK has translated into an immediate improvement in the real estate investment climate. Going forward, many investors are expecting rental growth. Both factors together will lead to a much increased appetite for real estate in London.’