The central London office market is forecast to attract £60bn of overseas capital over the next five years – the highest five-year total for more than two decades, according to research from Knight Frank.
The firm, which today (3 February) launches is annual London Report, said US investors would lead the five-year investment drive, with some £15bn expected to be allocated to London office assets. They will be followed by German investors, which have earmarked £6.6bn for the capital; then investors from Greater China (£6bn); Singapore (£5.5bn); and South Korea (£4bn).
With £5.3bn of deals currently under offer, Knight Frank said it expected to see £10.5bn of global capital investment into London offices in 2022 – a 17% rise on 2021. It said this uptick in investment would be driven by pent-up demand being released as cross-border travel and social restrictions ease, as well as a broader investor base looking to deploy capital into grade-A offices with strong lease terms and sustainability credentials.
The US will likely be the largest geographic source of capital this year, with £2.6bn expected to flow into central London office assets. Germany, China and Singapore will each invest around £1bn into the capital, said the agent.
Much of the drive to invest in London comes from the city’s strong focus on ESG. Knight Frank said London had some 1,078 BREEAM-rated offices, which was more than double any other European gateway city, and that offices with BREEAM Excellent or Very Good ratings were delivering a circa 10% premium on rents.
Exciting time for city
Nick Braybrook, head of London capital markets at Knight Frank, said: “Global investors have, and will continue to, focus on the long-term picture where London’s prospects offer the returns that opportunistic capital seeks.
“A large weight of smart institutional money is waiting in the wings to be deployed into income-generating assets, and grade-A central London offices, with its sustainability credentials and robust occupier activity, will continue to underpin investor sentiment. We are projecting a 17% increase in activity in 2022, but this is just the beginning of what we expect will be a longer-term trend of rising investment into London.”
Knight Frank’s head of London offices, Philip Hobley, said: “This is an exciting time for London as occupiers and investors drive a shift towards more sustainable and dynamic workplaces, where wellbeing, amenity and technology are paramount.
“London has a fantastic opportunity to channel unprecedented demand from international investors into the reinvention of key locations, such as the South Bank, and drive repurposing of outdated assets. London is better placed than any other city in the world to deliver a green recovery.”
Full year results for 2021 show that investment figures for London offices reached £12.3bn – a £3bn increase on 2020, and the biggest annual increase in volumes since 2017. During the year, international capital allocations towards the London office market also increased by £1bn, with US investors representing £2.4bn of the £9bn of foreign investment flows.
Take-up in the capital increased by 50% in 2021 to 8.19m sq ft. There are currently 7.5m sq ft of live office requirements in the market.
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