West End Investment Market

Investors have significant capital allocations for London, but are largely waiting for a resolution on Brexit before committing to transactions

For the first quarter 2019, the West End team recorded a total of £1.0Bn either exchanged or exchanged and completed in 19 transactions. This is broadly in line with Q1 last year, and 2018 finished with a relatively strong investment volume of £7.6Bn across 130 transactions, significantly ahead of the £6.8Bn 10 year average we have recorded. However, 2018 was some way behind the peak 2013 - 2015 years (2015 saw a record £9.3Bn) perhaps suggesting that, coupled with the Brexit investment slowdown, we are reaching a natural end to the investment cycle as, globally, a general slowing of the economy is experienced.

Despite this, similarly to the City market, momentum built towards the end of the quarter in the West End with March transacting the highest figures of the quarter in terms of both number of transactions and transaction volume, suggesting that irrespective of the Brexit uncertainty, and its eventual outcome, London remains high on an investor’s wish-list due to the market’s transparency and liquidity fundamentals.

The dominance of large transactions has continued with two transactions making up nearly half the Q1 volume: Allsop represented Columbia Threadneedle in the c £200M sale to Ashby Capital of 127 Kensington High Street and The Kensington Arcade, and M&G purchased North Wharf Gardens (Hotel) in Paddington for c £205M.

Whilst the market does feel relatively quiet in terms of demand from overseas investors, who are largely adopting a “wait and see” attitude to investing, domestic and European investors have sought to capitalise on the absence of this overseas competition in the market and this quarter accounted for 14 of the 20 transactions.

In terms of supply, there were over 20 sales launched during the first quarter, amounting to just under £1.0Bn of supply. We interpret there being at least a further £3Bn of stock either already available or technically withdrawn but where the vendor would still sell.

We highlighted in our last market report the trend for a higher than usual proportion of buildings being freehold or virtual and this has continued into 2019 – virtually all the buildings launched this year have been freehold - symptomatic of much of the investment demand coming from overseas and private investors.

At this point, it is impossible to predict whether 2019 will see strong volumes particularly in light of the Brexit ‘flextension’ failing to be a real game changer to the current uncertainty. Certainly there is investment stock available to buy, and through our relationships with Citi Private Bank largely targeting Middle East capital, plus Millennium Group in Hong Kong focused on Asia capital, we are aware of a large number of investors with capital allocations for London, and the wider UK. London investment returns look relatively attractive compared to many key global “gateway cities” but the Brexit uncertainty does continue to constrain buyers.