By Mark Browning, Member of the Advisory Board at Oracle Capital Group
Whilst the London commercial real estate market was not immune to the global turndown in 2008, it was relatively insulated by the strong fundamentals of being a Global City, having restrained supply, consistent occupational demand (that moved away from financial occupiers) and high levels of foreign inbound investment; it has therefore fared better than the rest of the country and recovered far more quickly. Interestingly though, prime West End office rents have still not overtaken the levels that were set in the heady days of 2007 (they are forecast to do so in 2017/18). Availability of office space across Central London is estimated at around 6% (it was closer to 4% in 2007) which is around half the UK average of 12.7% and, with improved market conditions, there is continued upward pressure on rents. Leasing activity in Central London rebounded in 2013 with the final quarter seeing 3.7 m sq ft of take-up, 20% higher than the long-term average but back to where it was in 2007.
A number of offices, particularly in the West End, have been lost to alternative uses, mainly residential, and this together with the improved occupational markets provides strong fundamentals for rental growth. These factors, together with the political and economic stability that the UK offers, are particularly attractive to foreign investors and we see yields to continue to harden across the Capital.
We estimate current rents and yields to be as follows:
| City | West End | Mid-Town | Canary Wharf | South Bank | Kensington | |
| Prime Rent | £65psf | £110psf | £70psf | £36psf | £52.50psf | £55psf |
| Prime Yield | 4.75% | 3.50% | 4.50% | 5.00% | 5.00% | 4.75% |
The retail story in London is equally encouraging (unlike other parts of the UK which are more reliant on domestic demand and have suffered from changing consumer spending habits and reduced disposable income levels). Double digit growth is forecast along London’s prime retail pitches, over 15% in the next 12 months, with the luxury enclaves leading the way. Yields of 2.5% for the best locations reflect these rental growth expectations and, coupled with tight supply dynamics and high levels of international demand, should remain well supported.
At Oracle, we have the ability to source off market investment opportunities which are generally unavailable to estate agents and brokers. We work closely with a specialist team in the Central London commercial real estate sector, and we are able to offer our investors unique opportunities to gain exposure to this market, ensuring that Oracle clients achieve their investment goals based on the best possible advice.
