Capital values in London offices are expected to fall by 12% by the end of 2018, but major REITs are in a position to handle potential losses, research from Green Street Advisors has shown.
REITs exposed to central London offices – Derwent London, Great Portland Estates, British Land and Landsec – are trading at discounts of 15-20% of gross asset value, which implies investors have priced in risks. Anything less than a sharp downturn, the analysts said, would reflect relative outperformance.
Meanwhile, prime City investment remains attractive, offering an 86bp premium to bond yields, compared to a long-term average of -34bps.
London’s development pipeline is expected to reach a cyclical high of 6.9m sq ft in 2019, although the continued prospect of rental falls and Brexit uncertainty could delay projects. The number of developments scheduled for 2021 has already increased by 36% since February while those scheduled for 2019 have fallen 13%.
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