London’s commercial real estate market is set for an increase in investment as £48bn of global capital is targeting the city this year.
According to research from Knight Frank, China remains the biggest potential investor in London with over £12bn ready to buy assets. This is an increase of 25% on 2019, a year in which total commercial real estate investment activity fell 15% to £13.9bn as Brexit uncertainty and a shortage of assets constrained deal activity.
Singapore is the second biggest source of potential investment, with £5.6bn of capital targeting London, an increase of 53% from 2019.
The numbers highlight the dominance of international investors in London’s real estate market, as UK capital makes up only 11% of total potential investment.
The last quarter of 2019 saw over £4bn of deals transacted, more than Q2 and Q3 combined, after the election of a pro-business majority Conservative government.
The industry is also expected to see an increase in values, as only £2.3bn of buildings are currently for sale in the capital.
“One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity,” said Faisal Durrani, head of London commercial research. “New office development has not been able to keep pace with this demand, and almost half of the space currently under construction is already spoken for. This supply crunch is most significant for those businesses seeking large amounts of space. We are tracking 30 businesses seeking more than 100,000 square feet, yet there are currently just 16 buildings in London that can service these requirements.
“Indeed, the supply shortage is helping to underpin our rental growth projections over the next five years. These show that headline office rents will rise by 15.7% in core West End locations such as Mayfair and St. James’s by the end of 2024. Elsewhere, we forecast rents in the City core to grow by 20% in the next five years.”