Middle Eastern investment in the Central London office market in 2023 has hit the highest level since before the pandemic, according to new research from BNP Paribas Real Estate.
In November 2023, Middle Eastern investment in Central London offices stood at £621m, in line with the previous five-year average from 2018 to 2022 of £618m. The period is the busiest for Middle Eastern office investors since 2019 when the first nine months of 2022 hit £817m.
James Carrington, head of City investment at BNP Paribas Real Estate, said: “Central London commercial investments have become more attractive as Middle Eastern cost of capital is now more in sync with what the market has to offer, with sovereign wealth funds, institutions and family offices becoming more active across the risk-return spectrum spanning core, core+, and value add. There is also less competition for deals over £100m, facilitating opportunities for Middle Eastern investors to provide liquidity in the market.
“Prime West End locations are the ‘hottest’ in terms of pricing, with yields remaining relatively robust and standing at 4.15%. Other submarkets of the West End such as Fitzrovia and Covent Garden, as well as core City of London locations, have seen further movement on yields and are now providing some interesting opportunities. This, combined with continued strong rental growth prospects for best-in-class assets, particularly in the core West End where supply remains constrained, creates the potential to realise excellent returns over the next five years.
“For those investors willing to roll their sleeves up and target core+ or asset management opportunities, particularly in improving EGS credentials, the margin for entry price and potential exit values is accentuated. To give this context, prime office rents across the West End have reached £150/sq ft, up 7.1% year-on-year, with experts forecasting significant growth over the next year and beyond. Rents in the City remained at £72.50/sq ft, however, premium rents achieving £90.00/sq ft+ are becoming commonplace.”
Carrington added that there was a “window of opportunity” to secure Central London office next year at “opportunistic capital values which have corrected faster than almost every other European counterpart”.
