No summer slow down for South East office investment market

Region witnesses in excess of £1bn deals transacted since start of 2011

Article posted: 16 Sep 2011

The investment market for offices in the South East has not witnessed the traditional slowdown over the summer months, according to the latest research by CB Richard Ellis. However, the recent deterioration in the global economy and emerging crisis in the equity markets has led to investors expressing a cautious stance.

Mark Routledge, Executive Director of Capital Markets, CB Richard Ellis said: “We have witnessed over £1bn of deals transacted in the South East since the start of 2011, and the region is faring well in the face of uncertainty in the global equity markets. With the FTSE losing 15.6% in value at the start of August, naturally investors and vendors are approaching the coming months with caution. However, a hardening of yields in the South East means that the market is now trading at parity with the regions for the first time since 2007. There remain a number of prudent investment opportunities in the market, and we are advising on several prime opportunities which are currently under offer, likely to complete in the next couple of months.”

UK funds remain keen to invest their money in the South East office sector and are anticipated to bid aggressively on good quality product as the final quarter of the year approaches. Davidson House, comprising 128,499 of retail and office space in Reading, Berkshire, completed last month and set a benchmark yield for the South East for the length of income. The deal completed at 6.40% net initial yield, compared to a quoting yield of 7.27%. This illustrates the strong institutional demand for high quality offices in the South East.

Prime M25 and South East yields have remained steady at 6.25% for the past 18 consecutive months but due to deals such as Davidson House, Reading, the yield has now compressed to 6.00%. As the occupier market improves and demand for diminishing Grade A stock continues, CBRE expects to see yields come under further pressure towards the end of the year but only for the best stock in the market.

Meanwhile, secondary yields will continue to lag and we anticipate the yield gap will continue to widen. In the final quarter of the year, CBRE anticipates that domestic and international funds will continue to look seriously at the South East office market as Grade A occupier demand is robust and yield prospects are currently higher than those of office space in the West End and offices in the City of London.

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Posted by Jo