London’s commercial property sector is predicted to surge ahead with healthy demand and positive rental growth, swelled by the estimated 80% of £52bn of equity targeted at the UK commercial property market.
The £52bn figure comes from commercial real estate services firm Jones Lang LaSalle, which predicts investors from the buoyant Asia-Pacific markets will seek to diversify and become the dominant overseas purchasers in London, superseding investors from the Middle East.
In 2010, 68% of the £5bn investment in the City of London’s commercial property came from foreign investment. A similar performance was delivered in the West End, where 62% of the £5.02bn investment came from abroad. Overall, 63% of Central London’s 2010 office transactions were made by overseas investors.
London’s current environment of low interest rates, weak sterling and prime locations all mean the above figures are expected to be improved upon throughout 2011, with increased capital resources expected from China, Indonesia, Taiwan and Thailand.
The lack of commercial property development this year is flagged up as an area for concern, but lending is still predicted to increase; Barclays has already been reported as intending to increase its commercial property lending.
Having managed to avoid much of the commercial property market crash, its Head of Real Estate, Brendan Jarvis, has been talking of the ‘appetite’ the bank has for further lending. Wales, Scotland, Birmingham and Manchester are other regions it has earmarked, in spite of the recent government cuts in those areas. Deals will also be considered for secondary commercial property loans, despite the focus being on London’s prime estate.
Drivers Jonas Deloitte’s UK Key Cities Office Trends 2011 echoes regional optimism, stating that London’s prosperity is expected to encourage some investors to seek value in surrounding areas, ‘attracted to secondary assets by relatively high yields and opportunities to add value.’
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