Dry powder for London offices holds up at €52b

The volume of capital targeting London’s office investment market in 2021 has held firm at £46 bn (€52 bn), despite the Covid pandemic.

Knight Frank’s £46 bn estimate for this year is 5% down on investor intentions at the start of 2020, before Covid struck.

Once again, the firm said that the largest pool of potential buyers is from Hong Kong, Taiwan and China, at £12.6 bn. That is slightly down on £14bn at the start of 2020.

The second largest group, at £10.8bn, is the rest of the Asia-Pacific region, with Singapore the most ambitious in this cohort with £5.5 bn of dry powder, followed by South Korean and Japanese investors. Some £4.8 bn has been allocated by domestic UK investors.

Last year, the £48.4 bn of capital identified by Knight Frank resulted in £9.4 bn of actual transactions. This was considerably lower than the circa £12.5 bn - £13 bn average of the last few years.

Nick Braybrook, Knight Frank’s head of London capital markets, told PropertyEU: ‘Given how global cross-border flows tumbled in 2020, and that London is fairly reliant on its cross-border activity, the fact that the demand tracker hasn’t moved that much for 2021 is a positive.’

One big difference this year may be the hit rate of the different nationality investor groups. Braybrook believes that continental European and North American capital will be much more competitive - and successful - this year.

The firm will shortly be bringing out its ‘Capital gravity model’ which forecasts how successful different cohorts of investors will be.

‘Of all the buyer line-up in the tracker intentions we think the US will be one of the most successful actually deploying capital, because their money is going to be most competitive’, he said.

He said the model also suggests that investors from Germany, France, Switzerland and Spain will invest more in London. They have £5.5 bn focused on London.

In the North American cohort, he highlighted Blackstone, Brookfield, JP Morgan Asset Management and Morgan Stanley which all have core/core-plus strategies and large amounts of capital available. JP Morgan and Morgan Stanley have both launched pan-European, open-ended funds in the last 12 months.

They could be buyers of core-plus buildings, assets with 4-7 years of income, which were not sought after in 2020. Braybrook believes confidence will return to London’s occupier market from Q3 2020, when ‘that is the area that will probably perform the best at the back end of the year as the market recovers, in my view’.

Brookfield is still under offer to buy Plantation Place in the City of London for around £800 mln. If that transaction goes through in Q1 2021 it will be a filip for the market.

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