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‘Sharp recovery London returns’

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UK - New analysis from Grosvenor Fund Management predicts a sharp recovery in London office returns starting in 2010 and generating 12-13 percent p.a. returns over five years. This follows capital value declines in excess of 45 percent since mid 2007.

Rents are expected to increase by about 60 percent through 2011-2016. Supply is expected to be very constrained: 2009-2013 will see the lowest level of new offices delivered in London West End and City since records began in 1986.

 

The London office market has historically performed very strongly in the recovery periods of economic cycles. It is extremely responsive to changes in the international economic environment and global capital markets. Performance could even exceed returns seen in the 1990s recovery for a number of reasons, according to Grosvenor: ‘There is comparatively less excess supply with new offi ce development expected to total just 9.8 million sq ft from 2009-2013, significantly below the long run five year average of 16.2 million sq ft to 2009. Current rapid

improvements in some demand indicators are leading to increased forecasts

of take-up from occupiers. London now has a larger market share of and more diversifi ed exposure to the global financial and business services sector.

 

Grosvenor adds: ‘It is well known that London is one of the world’s three great financial centres. Recent research by Grosvenor shows that London is the best offi ce location in the world based on GDP, connectivity and quality of life. London’s high GDP is due to excellence in financial and business services. Connectivity refers to the high number of company headquarters that are located in the city. London’s high quality of life is due to factors such as: governance, medical facilities, cultural amenities and transport. These factors create a huge demand for offi ce space in London which may fluctuate with the fortunes of the global economy, but is an extremely robust long term trend.’

 

Grosvenor Fund Management is seeing signifi cant interest from investors in

accessing the London office market. For that reason, Grosvenor FM is looking

at launching a short term tactical fund vehicle, designed to benefi t from

the strong cyclical growth phase that the London offi ce market is entering.

The fund will look to maximise returns by investing, adding value and

divesting during the growth phase.