COMMENT Recent headlines are pointing towards a steady uptick in investment in commercial real estate in prime central London.
Property investment business Derwent London recently reported that new leases in 2024 totalled £5.4m, including a new 15-year lease with Cushman & Wakefield at a rent of £1.8m for 17,100 sq ft on Baker Street.
Elsewhere, Landsec which owns billions of pounds of commercial property claimed that values of high-quality properties had largely bottomed out and will start to rise in the foreseeable future as rents increase.
Mark Allan, Landsec’s chief executive, said that following a reset of values over the last two years driven by rising interest rates, the stabilisation in rates and evidence of continued rental growth are beginning to attract increased interest from investors for the best commercial assets.
Absolutely the right space
We are also noticing a steady rise in interest among investors for high-quality commercial buildings in prime central London, owing to increased tenant demand as the return to the office continues.
Notably, tenants are wanting less space than before due to flexible working patterns, but it has to absolutely be the right space, with the office now seen as a direct embodiment and extension of a company’s culture.
Furthermore, research from BNP Paribas Real Estate revealed central London investment volumes reached £1.6bn in Q1 2024, up 22% quarter-on-quarter as investors are starting to find value in the market.
Prime rents reached record highs, with the West End increasing to £155 per sq ft and the City of London rising to £77.50 per sq ft.
Interestingly, UK inward investment from US-based investors recorded a 64% year-on-year growth from £1.9bn in Q1 2023 to £3bn in Q1 2024, marking the largest quarterly increase since the Covid-19 pandemic.
Election offers certainty
We are seeing more investors, particularly those less reliant on debt finance and ready to pounce with available capital, returning to the prime central London market following a two-year period of pricing correction.
With a date for the general election now set, we now have at least a degree of certainty following months of ‘if’ and ‘when’ and while we will not truly know the outcome until after the vote, it looks likely that Labour will win.
Labour’s proposed vision to replace complex and ‘unfair’ business rates with a lighter tax burden for business properties could positively impact the market.
Regardless of short-term ups and downs, experienced investors taking the long view will continue to snap up investment opportunities, taking confidence from big players like Landsec and Derwent London.
We will also continue to grow our portfolio in prime central London as we have strong confidence in the market and its ability to generate stable returns.
Byron Baciocchi is founder and chief executive of Unica Capital
