London’s commercial property market took a hit in the second quarter of 2022 as investment declined amid a weakening economic outlook, according to data by BNP Paribas.
Central London properties experienced an eight per cent investment drop at £4.5bn compared to Q2 last year, with the number of office deals transacting at less than half the 10-year pre-pandemic average.
Soaring inflation and recession fears added to these declines as higher debt and costs dented confidence.
“The speed of the interest rate hike has caught the real estate market by surprise, said Etienne Prongue, CEO of BNP Paribas Real Estate UK. “As it stands, rising debt costs and the deteriorating economic outlook are impacting pricing discussions, causing some sellers to pause disposals and wait for improved sentiment.”
Activity in the office market in Q2 was at £2.9bn, a steep drop from £5.3bn seen in Q1.
Taking into account total transaction volumes in the UK as a whole, investment in Q2 was at £12.1bn, a 32 per cent fall from Q2 2021.
“As geopolitical tensions remain high and inflation continues to rise, the economic outlook remains challenged, said Vanessa Hale, Head of Research and Insights at BNP Paribas Real Estate. “Consumer confidence has fallen significantly in recent months as concerns around personal finances are exacerbated, meanwhile, businesses and investors are having to absorb rapidly rising finance costs, therefore applying pressure to the real estate market.”
However, total central London investment in the first half of 2022 was £10.3bn, the busiest half-year on record and higher than the £10.2bn level seen in 2017.
The central London office market also reported £8.2bn of investment transactions over the first half, the highest since 2007. But the volume of transactions is low, despite high turnover.