Q4 & Year End South East Office Investment Market Snapshot

By January 23, 2019 Insight
  • 2018 was a year in which the market proved itself to be markedly resilient, with transaction volume coming in at £2.75bn – 11% over the 10-year average – despite the challenging political and economic macro environment.
  • It is no surprise given many investors cautious mindset that 2018 transaction volumes were down on the strong levels achieved in 2016 (-47%) and 2017 (-18%).
  • Local Authorities were a key contributor throughout the year to the market’s resilience, responsible for £789m of transaction volumes, reflecting 29% of the total market. Typically, they are now looking beyond single-let, long income opportunities and are now acquiring multi-let and shorter-income opportunities requiring greater ongoing asset management.
  • The Institutional Funds were also active buyers, typically for ‘ prime’ product such as Aviva’s acquisition of Aurora in Ealing, Orchard Street’s acquisition of The Brinell Building in Brighton and M&G ’s acquisition of St. George’s House East in Wimbledon, all of which took place during Q4 2018. Long income or ‘ real return’ opportunities are also a key focus for the majority of Institutional Funds.
  • Private Equity Managers were active in reviewing a number of investment opportunities and have considerable ‘dry powder’ to deploy , but have found either Vendor’s pricing aspirations to be too steep, or that they have been out competed by buyers with a lower cost of capital.
  • Approximately £587m of south east office investment stock was openly brought to the market but failed to sell during 2018 and we expect a number of these assets to be picked up at highly attractive pricing levels over the coming months.
  • However, the UK political situation and global economic headwinds will continue to dominate investors mindsets, resulting in subdued investment activity during H1’19.
  • The occupational markets are performing well with occupiers willing to invest in acquiring new space. We expect this trend to continue, which should keep investors attention focused on the sector .