Commercial property investment volumes in the West End and City of London markets slowed in the first quarter of 2018 as the number of available opportunities failed to keep pace with strong investor demand, says Savills.
Commercial property investment volumes in the West End and City of London markets slowed in the first quarter of 2018 as the number of available opportunities failed to keep pace with strong investor demand, says Savills.
According to Savills, 2018 saw a muted start to the year in the City, with Q1 turnover reaching £1.37 billion across 20 transactions, 11% down on the 10-year average of £1.54 billion. Savills says that investor sentiment remains strong, highlighted by the fact that there is currently £3 billion of assets under offer in the market, 20% of which has already unconditionally exchanged, but a lack of available stock is compressing volumes. This is particularly acute in the sub £50 million segment of the market, with only 16 properties currently available within this price range, compared with 25 in 2017 and 33 in 2016.
In the West End volumes were also subdued over Q1, with turnover for the first three months of the year totalling £1.07 billion over a total of 24 transactions, 17% below the 10-year Q1 average. Savills says that little openly marketed product, combined with continued appetite for Central London property, has led to strong prices being maintained for all commercial asset classes within the West End, with the current supply demand imbalance showing no sign of abating. Again, smaller mixed-use assets have been trading strongly in the West End, according to Savills. In March a private European investor purchased 128 Kings Road for £7.31 million, reflecting a 2.9% net initial yield, and Savills has advised on the sale of 10 Shepherd Market for £4.5 million, reflecting a 2.42% net initial yield.
Stephen Down, executive director at Savills and head of the central London investment team, says: “With investor interest remaining high the lack of available stock is likely to continue to frustrate both Central London markets. The supply/demand imbalance is particularly evident at the lower price points, where there is a wide pool of investors, both foreign and domestic, hunting for stock. In the City, Asian investors continue to be the main players, accounting for 57% of total Q1 investment volumes, but UK investors were responsible for 23% and, interestingly, were ahead in terms of number of deals, with 12 acquisitions in Q1 2018 - 60% of all City deals.” Savills prime City yield remains at 4.00% for the fourteenth consecutive month, this compares with the West End prime yield of 3.25%.