COMMENT Things are looking up for the central London office investment market, with investment volumes having rebounded significantly in the first quarter of this year. In fact, it was the strongest start to the year since 2022.
The larger-end of the market, typically reliant on debt-backed investors, has been particularly negatively impacted in recent years. This was first triggered by the pandemic’s rise in working from home and then exacerbated again by the sharp and sudden rise in interest rates in the middle of 2022.
On average only three £100m+ deals were transacted each quarter between 2023 and 2024. In that time, no deals of £400m or larger were completed. In fact, just £5.2bn was transacted during 2023, which was the lowest annual total since 1999, with volumes then falling even lower in 2024 to £4.9bn.
Changing hands
In a sign of hope to the market, throughout the first quarter of 2025, office investment in central London totalled £2.4bn, more than double the same period a year earlier and 49% higher than in the fourth quarter of 2024.
Our research has also found, however, the cost of debt has largely remained high. Although interest rates have fallen from their peak since the start of the year, they have not reduced as much as hoped, with the five-year SONIA swap standing at about 3.8% in the middle of April 2025. In addition, a great deal of volatility remains, with significant changes in the swap rate still occurring on a weekly and a daily basis.
If the high debt cost environment is still with us, what has changed? The answer can be found by examining the deals that transacted during the quarter. The investment volumes were driven by six transactions above £100m. Of those six, all but two were formations of joint ventures or the purchase of a part share of a building.
Included within this number are the formation of two separate landmark JVs by Norges Bank Investment Management with Grosvenor and Shaftesbury, as well as the sale of a 50% share of 2 Finsbury Avenue to Abu Dhabi new entrant Modon Holding.
Share and share alike
JVs have led the way and there could be more to come. Royal London Asset Management’s purchase of a 50% share of 1 Triton Square from British Land, completed in the first quarter of 2024, can now be seen as a very important deal for this cycle which has paved the way for many others.
In the current environment, such arrangements can prove mutually beneficial to vendor and purchaser alike. The benefits to the vendor are that they are able to dilute their stake in order to de-risk, while still benefiting from any upside potential, and retain exposure to the market. They are also able to receive an equity injection without turning to the debt markets.
JV opportunities are an attractive option for investors wishing to increase their exposure to a particular sector or market by partnering with an established and experienced owner.
Looking ahead, we expect JV opportunities, especially at the larger end of the lot-size spectrum, to continue to appeal to all equity investors, particularly sovereign wealth fund and pension funds with global outlooks.
Simon Brown, head of UK office research, CBRE
