The South East office investment market has started 2021 well, continuing the strong Q4 in 2020. Total investment volumes in Q1 2021 reached £519m, while this is down 51% on Q1 2020 it is 29% up on Q1 2019.
The largest transactions to complete in Q1 were Brockton Everlast’s purchase of 214-240 Science Park, Cambridge for £98m and the acquisition of Procter & Gamble’s HQ in Weybridge for £49.55m by a private Middle Eastern Investor at 4.25% NIY and 5.21% NIY respectively.
Following the trend last quarter, activity from overseas investors continued to gain momentum as demand remained high for prime assets accounting for a 50% share up from 31% in Q4 2020. This was followed by Property companies taking an 18% share of total investment volumes.
Hugh White, Head of National Office Investment
Looking ahead, Q2 2021 begins positively as vendors are more realistic on pricing hence transaction volumes are expected to rise based on assets under offer. The office market continues to witness a K shaped recovery whereby the high growth / specialist employment sectors and well let (10 years +) pricing is hardening while core, core plus and value add pricing is drifting by varying degrees.
We expect to see this trend persist throughout the year as finance remains very low and the pressures on rental growth in the Life Science sector are being driven by a global occupational demand in markets with only a local supply volume.
The appetite for Life Science assets should be seen in a global context and on this basis the sector offers substantial rental growth. The sector is dependent on talent. The UK, courtesy of our world leading universities, provides an exceptional talent pool who are currently paid significantly less than their US counterparts. In addition in a post Brexit world as the Finance sector’s importance to the economy reduces so Life Science is becoming the Government’s new darling and a sure fire way to ensure global inward investment and help retain the UK’s global standing.
The rental growth potential in the Life Science sector is at a similar point to that of ultra prime retail in the early 2000’s. At the turn of the century Bond Street rents had looked full on a UK basis but once compared to rents in other leading global cities Bond Street was at a notable discount hence the potential for growth was significant and those investors who acquired at that time were richly rewarded.
Meanwhile within the traditional office arena 2021 is presenting exciting opportunities in the core to opportunistic space as yields are at a discount to the long term average and rental growth will continue for the best in class assets.
K Shaped Recovery
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