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Middle Eastern investment into central London offices is the busiest it has been since before the pandemic, according to research from BNP Paribas Real Estate.
Middle Eastern investment into central London offices stood at £621M as of November and is already in line with the average from 2018 to 2022 of £618M. This period also marks the busiest for Middle Eastern office investors since 2019, when the first nine months reached £817M.
BNP Paribas Real Estate said that there is a “window of opportunity” to secure central London office and retail investments next year at opportunistic capital values as valuations become more realistic and debt providers encourage what it called “more consensual sales,” boosted especially by off-market deals.
“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,” BNP Paribas Real Estate Head of City Investment James Carrington said in a statement. “There is also less competition for deals over £100M facilitating opportunities for Middle Eastern investors to provide liquidity in the market.”
He described prime West End locations as 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 what Carrington called “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,” he added.
Commercial real estate is set to become more attractive in 2024 as pricing stabilises and other asset classes such as gilts and cash returns sharpen, according to BNP.
Meanwhile, Strutt & Parker’s London New Homes team has attributed 50% of its market this year as dollar-based, with 30% from the U.S. and 20% from the Middle East. It said that the success of new-build schemes this year is not only a currency play but based on the high-quality product offered.
“While premium values have barely shifted over the past year thanks to the market’s discretionary nature, those buying with dollar-based currencies, such as the U.S., Middle East and Asia have been able to capitalise on a weak pound and have made their own savings,” Strutt & Parker/BNP Paribas Real Estate Private Client & International Department Director Victoria Allner said in a statement.
Strutt & Parker forecasts prime central London house price growth of up to 10% over the next five years.
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