Central London offices have reached peak

LSH Q4 2011 UK Investment Transactions report shows downward shift in office investments

Article posted: 02 Feb 2012

The outward yield shift recorded in Q4 2011 for offices in Central London is a clear sign that the price demanded for office space in the capital has peaked and a period of consolidation is going to follow.  These views are reported in UK Investment Transactions (UKIT) Q4 2011, Lambert Smith Hampton’s quarterly research report.

Ezra Nahome, CEO of LSH believes that prime office space in Central London will always be in demand but there are indications that good secondary space is beginning to be regarded as overpriced. He thinks that the cost of office space in the City is threatened by the forecasted job cuts in the banking and financial sector.

Investment volumes in the market as a whole in Q4 fell by 16% from Q3 to £6.8bn as investors sought the relative safety of UK government bonds – this downward shift can be attributed to many factors, primarily the Eurozone debt crisis holding back investment by cash rich corporates, weak GDP growth and a severe lack of available debt.

Commenting, Ezra said: “The Eurozone debt crisis is constraining expectations for 2012. Even if the Eurozone remains intact we are going to experience a period of stagnation which could stretch all the way into 2013. The outward yield shift for Central London offices is the clearest sign yet that the market is faltering.”

In the regional markets office space in the south east was the most active in 2011, attracting 13% of the annual investment volume. The south east is the UK’s most mature regional investment market offering a considerable amount of available prime or good quality secondary stock. Volume in other regional markets was lower due to a lack of supply and debt.

Looking forward, the sale of distressed assets by the banks and LPA receivers is expected to heighten in 2012 as banks look to deleverage. Ezra explained: “The major UK banks have substantial amounts of secondary and tertiary stock on their balance sheets. In 2011 we recorded over £2bn worth of distressed sales and over £1.5bn of debt sales and we are already aware of approximately £2.5bn worth of debt coming to the market in the first part of 2012.”

Click here to view an interactive e-version or download a PDF version of UKIT Q4 2011 here.

For breaking news relating to office space in the West End and City follow us on http://twitter.com/officespacenews

Posted by Jules