Capital growth for London’s office sector has declined by 17.1% year-on-year from Q2 2022 to Q2 2023, outpacing other key European markets in terms of capital value trajectory.
The analysis by BNP Paribas Real Estate showed that in the same period, London’s office sector witnessed the most corrections in capital growth among eight key markets – Amsterdam, Berlin, Dublin, Hamburg, Frankfurt, Milan, Paris and The Hague – since June 2022. Amsterdam was the only exception.
Signs that interest rates may peak by year-end indicated that London’s commercial real estate sector could be in the final stages of adjusting to a price correction that began at the start of Q2 2022, following higher inflation, the rising cost of debt and tightening monetary policy.
The London office sector now presents “a rare entry point” for investors, whether they want repriced core assets or can reposition properties into core market assets. This marks a shift from a seller’s market that lasted for a decade to one where buyers, particularly those with all-equity, hold the advantage, explained Fergus Keane, head of central London investment markets at BNP Paribas Real Estate.
However, this entry point won’t last long, predicted Keane. “Analysis shows yields can come in quickly when interest rates start to fall, and this is expected to come through in the first half of 2024. I expect this opportunity window to be closing this time next year.”
According to the analysis, the low value of the pound is drawing in foreign investors. In Q2, European investment in Central London offices increased, making up more than 21% of the total investment – an 18% rise from H1 2022. Meanwhile, Asian Pacific investors contributed to 42% of all central London office investments in H1 2023.
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