Real estate investors are showing no loss of appetite for London-based assets, according to a Jones Lang LaSalle market report. Last year exceeded all records with £15.38bn (e22.62bn) of real estate traded – a 41% increase on 2004’s figure, which was also a record.
Prime initial yields have suffered further compression, with the West End market falling 100 basis points over the year to 4%, and the City market falling by 50 basis points to 5% or less.
Significant City deals included the £312m sale of Alban Gate, London Wall, EC2, reflecting an initial yield of 5.6%. In the West End, 33 Cavendish Square, W1, sold for £443m. The figure was significantly above the original asking price of £315m and reflected an initial yield of 3.75%.
With a take-up of 3.12 million ft2 in the West End and 5.26 million ft2 in the City, the occupational market in 2005 fell just below that of 2004, but Jones Lang LaSalle saw signs of further strengthening, with the West End transacting 70% of its occupational deals in the second half of the year.
The company said the total office space on the market decreased by a quarter on 2004. Vacancy rates now stand at 4.4% for the West End and 10% for the City.
Further contractions are expected this year on the basis that speculative completions are running below take-up levels for new and grade A space. This lack of choice led to the £90 per ft2 barrier being breached in the West End, with Consensus paying £92.50 per ft2 for two floors of 35 Curzon Square (although, overall, the deal equated to around £80 per ft2).
Jones Lang LaSalle investment director Chris Northam said: “We anticipate prime yields will continue to fall as the weight of money chasing opportunities remains stable whilst the availability of new product may be more limited than in 2005.
“We believe that a number of the traditional West End investors, particularly those from the Middle East, may broaden their target market to invest in the City and in Docklands.”
Northam’s colleague, Phil Howells, said: “Rental growth should accelerate in the West End from now onwards and the same should happen in the City towards the end of the year.”