Investment in central London commercial property has nearly matched the 2007 peak of £20.6bn, posting transactions of £20.5bn in 2014.
According to Cushman & Wakefield, the weight of money flowing into the capital from the UK and abroad is set to continue in 2015, with the demand-supply imbalance placing further pressure on yields.
City of London and Docklands transactions stood at £5bn in Q4 2014 and £13.8bn for the year as a whole.
West End transactions, meanwhile, stood at £2.4bn in Q4, with overall volumes of £6.7bn.
Overseas investment continues to dominate in both markets, standing at 78% for Q4 and 2014 as a whole.
In the West End, foreign investment totalled 61% for Q4 and 55% for 2014.
City demand is stoked by major sovereign wealth funds, with Asian investors dominating Q4 and North American buyers spending the most over the year as a whole.
2014 saw positive net investment from both Asia and the Middle East, while all other regions – including the UK – disinvested from the capital.
The top five investment deals accounted for 32.6% of the City total, including the £1.7bn purchase of More London, SE1, the £1.2bn purchase of the HSBC Tower, E14, and the £726m paid for the Gherkin, EC3.
C&W head of City investment James Crawford said: “We saw a strong City of London investment market in 2014 with international investors dominating acquisitions. The international appeal of London continues with an ever-increasing spread of new global investors entering the market – and there are no signs of an imminent slowdown.
“The first half of 2015 shows all the early signs of a continuation of last year but we expect some profit taking to occur later in the year and uncertainty around the general election in May.
“We estimate there is £250bn of liquidity in the market available for direct investment in property – when this is combined with an improving debt market, a severe supply-demand mismatch will be created.”
In the West End, Q4 saw the highest quarterly volume, 10% up on Q3.
Although above the 10-year average, the £6.7bn total lags behind 2012’s and 2013’s volumes.
North American investors were the most active, with 19% of purchases, followed by European investors at 14%.
UK investors disinvested from the West End over 2014, but all other regions were net investors.
C&W West End investment partner Andrew Thomas said: “In 2014 we saw the return of the UK funds as major investors in the West End. The consequence of yield compression outside of London resulted in investors needing to focus on growth markets for returns, hence the surge of capital in the latter half of last year. As the prognosis for growth appears strong for the West End market, the outlook for 2015 looks positive – particularly for assets which allow for such growth to be captured early.”
