Returns from office investments in the West End rocketed to 23.3% in the 12 months to 30 June.
The performance was the strongest in four years, according to the IPD/Colliers International West End report.
The figure was extracted via an analysis of more than £11bn of assets and showed that returns were more than double the 10.3% posted in the previous 12 months.
Rents have continued to rise, meaning that rental values in the West End are now only 5.5% off their previous cycle peak in March 2008.
Colliers co-head of central London investment, John Olney, said: “With an improving economic environment, growing occupier demand and supply remaining constrained, the only consequence can be continued rental growth.”
Some £5.1bn of sales were completed in the research period. For the first time, average capital values broke through the £1,000 per sq ft mark to reach £1,112 per sq ft.
Office values could increase further owing to house builders viewing the assets for residential conversion opportunities.
David Hanrahan, Colliers International’s co-head of London agency and development, said: “In 2013 just under 800,000 sq ft of West End offices were converted to homes and there are unimplemented consents which could remove a further 1.8m sq ft from the market if they proceed.”
joanna.bourke@estatesgazette.com
