London office market driven by foreign buyers

Record levels of purchasing from foreign investors in 2012 saw the central London office market register its strongest annual performance since 2007, according to real estate agency Knight Frank.

Overseas buyers were behind 70% of the total activity in the capital’s office space market last year, investing approximately £9.6bn in London’s commercial property – the highest figure on record.

Turnover on investments in central London rose to a five-year high of £13.8bn last year, surpassing £9.6bn worth of investment registered in 2011 as well as the 10-year average of £10.8bn.

Since 2000, when overseas investors accounted for 24% of transactions, interest from foreign parties in the London office market has grown exponentially, with 2012 becoming the fifth consecutive year that such groups have been accountable for the lions’ share of purchases in terms of volume.

On the leasing market, the take up of office space in 2012 was down on the previous year, from 9.6m sq ft to 10.7m sq ft respectively. Meanwhile, vacancy rates fell slightly to 7.2% at the end of 2012, compared to 7.3% recorded at the same period in the previous year. Such figures ensure that the five years since 2007 have become the first instance on record of the UK economy navigating through a financial crisis without witnessing a rise in vacancy rates.

The majority of transactions took place in the traditionally safe areas surrounding the West End and The City of London. The latter registered noticeably strong returns as a result of governmental initiatives to increase investment from media and technology-based companies in the Old Street district dubbed ‘Silicone Roundabout’.

Take-up of office space in The City rose to 5.8m sq ft by the close of 2012, a rise of 0.3% on the annual average of 2011. Vacancy rates fell by 0.5% from 8.9% to 8.4% in the same period, thanks largely to the 1.2m sq ft occupied by media, technology and telecoms companies – a 25% increase on 2011. Vacancy rates for West End office space fell to just 5.6%, well below the long term average of 7.6%.

The total amount thought to have been invested in all forms of property in the capital during 2012 – including office space, residential units, industrial and retail property - is thought to be in the region of £35bn - £40bn according a report released by property services group CBRE at the close of last year.