Investors targeting London in 2021
With real estate appealing to traditional and green investors, £46bn is being pumped into the London office market recognising the capital's 'safe haven' status.
With the risk of a no-deal Brexit off the table, investors are once again turning to London's office sector for yields that are unmatched by other European and global gateway investment destinations.
While greater China dominates the world investment rankings attracting £12.6bn in dry powder capital, London continues to hold its own with over £3bn invested in commercial property assets.
Long term shortage
While the pandemic has caused a reappraisal of remote working and the future of the office, global property adviser Knight Frank believes that indicators point to a long term shortage of office space in the capital.
Some 26,6m sq feet of pipeline office developments are due for completion over the next 15 years in London. But with only 3.2m sq ft to be offered speculatively - without a secured tenant - by 2024, Knight Frank are predicting a substantial shortfall. The long run average take up for office space is 5.3m sq ft and a continued imbalance will put upwards pressure on rents for high quality office space.
In fact, Knight Frank are expecting every submarket to experience rental growth over the next half decade as the volume of office space available to meet demand remains limited.
The property adviser also foresees a shortfall between premium grade offices that prioritise modern amenities, wellbeing and sustainability and older poorer quality buildings. Prime London assets continue to demonstrate their liquidity according to Knight Frank and they predict a race to secure the best commercial assets as London recovers from Brexit uncertainty and the pandemic.
Committed to London
Faisal Durrani, Head of London Commercial Research at Knight Frank, says international investors remain committed to London, even in the current environment. He expects that appeal to remain unwavering despite limited opportunities to invest in the current year.
Despite the greatest disruptor that the commercial property market has ever seen, there are signs of recovery, not least in the UK's Covid-19 vaccination programme and continued commitment to placing construction at the heart of the critical green recovery. London remains the number one city for cross border investment, both private and public, demonstrating the enduring resilience of the capital's appeal.
With the highest concentration of green buildings in any global city, London is also highly attractive to a new breed of green investors.
An increasing number of developments are being expected to meet ambitious ESG credentials, with environmental, social and governmental investing on the rise. Assets like the Halo office building in Bristol, forward funded by TPI, are designed to fulfill as many ESG criteria as possible. In a report titled 'Green is the new Black' published in 2020, Frank Knight explored the issues surrounding ESG investing and how it can meet sustainable investment goals, particularly for pension funds who now include ESG in their SIPs.
However, with 3,000 office buildings offering opportunities to rebalance carbon targets, no wonder investors still have the capital top of their wish list even during lockdown.