London offices enjoy strongest spend in years

Kasmira Jefford
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THE CENTRAL London office market enjoyed its strongest year for investment since 2007 last year, thanks to a record level of purchases by foreign investors, according to data published yesterday by Knight Frank.

The property specialist said total investment turnover for central London was £13.8bn in 2012, up from £9.6bn in 2011 and higher than the ten year average of £10.8bn.

Overseas buyers invested £9.6bn, the highest figure on record, and nearly 70 per cent of total activity compared with 24 per cent in 2000.

Major deals last year included the landmark sale of Battersea Power Station, which was rescued out of administration by a consortium of overseas developers led by Malaysia’s SP Setia for £400m.

Winchester House, Deutsche Bank’s City headquarters, also went under the hammer to China Investment Corporation (CIC) for £245m, the sovereign wealth fund’s first direct property investment in the UK.

Stephen Clifton of Knight Frank said foreign buyers dominating the London office investment market “has become an established state of affairs”. He said the further weakening of the pound in recent weeks will also increase London’s appeal to overseas investors, whose home markets often offer less attractive yields.

“In 2012, much of the focus was on the safer assets, but in 2013 I expect to see investors taking on more risk, including looking at development sites in order to ride the global economic recovery,” Clifton added.

Despite a strong year for office investments, leasing in London was down, with take-up reaching 9.6m square feet compared to 10.7m sq ft in 2011.

The City office market was the top performer. As banks shelved plans to move, TMT firms (technology, media, telecoms) became the largest source of demand of office space in the City in 2012, accounting for 22 per cent of activity, targeting areas such as Clerkenwell and Farringdon.

Knight Frank’s James Roberts said: “A lot of people are surprised that the City has seen take-up rise in 2012, because it is associated with the banks, who are known to be cutting staff.” Insurers also drove demand for space, doubling their activity to 878,000 sq ft last year.

Overall, City take-up rose to 5.8 m sq ft, up from 5.5m sq ft in 2011.