Commercial property investment volumes in central London slowed in the first quarter of 2018 as the number of available opportunities failed to keep pace with strong investor demand, reported Savills.
In the City, Q1 turnover reached £1.37bn across 20 transactions, 11% down on the 10-year average of £1.54bn. Savills said that investor sentiment remained strong, highlighted by the fact that £3bn of assets were under offer, 20% of which had already unconditionally exchanged.
However, Savills said a lack of available stock was restricting volume. This was particularly acute in the sub-£50m segment of the market, with only 16 properties currently available within this price range, compared with 25 in 2017 and 33 in 2016.
Volumes down
In the West End, volumes were also subdued over Q1, with turnover for the first three months of the year totalling just under £1.1bn over a total of 24 transactions, 17% below the 10-year Q1 average. Savills said that a dearth of openly marketed product, combined with continued demand for central London property, had led to strong prices being maintained for all commercial asset classes in the West End, with the current supply-demand imbalance showing no sign of evening out.
Smaller mixed-use assets have been trading strongly in the West End. In March a private European investor purchased 128 Kings Road, SW3, for £7.3m, reflecting a 2.9% net initial yield, and Savills has advised on the sale of 10 Shepherd Market, W1, for £4.5m, reflecting a 2.42% net initial yield.
Stephen Down, executive director at Savills and head of the central London investment team, said: “With investor interest remaining high, the lack of available stock is likely to continue to frustrate both central London markets.
Imbalance
“The supply/demand imbalance is particularly evident at the lower price points, where there is a wide pool of investors, both foreign and domestic, hunting for stock. In the City, Asian investors continue to be the main players, accounting for 57% of total Q1 investment volumes, but UK investors were responsible for 23% and, interestingly, were ahead in terms of number of deals, with 12 acquisitions in Q1 2018 – 60% of all City deals.”
Savills prime City yield remains at 4% for the 14th consecutive month, above the West End prime yield of 3.25%.
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