As the price of commercial property in traditional London hotspots continues to rise, investors are increasingly looking beyond these prime areas in search of more attractive returns. This, according to the Farebrother and Union Street Partners IPD Centre of London Office Investment Report H1 2015, has seen both the Midtown and South Bank markets outperform the West End and the City.
The research, which was conducted in association with MSCI and used the industry standard IPD UK Annual Property Index, shows that the total returns for Midtown and South Bank each reached 11.3 per cent during the first six months of the year. By comparison, the West End and City lagged somewhat behind, achieving figures of just 9.2 per cent and 10.1 per cent respectively.
Although this trend has been gathering pace since midway through 2014, it shows no sign of slowing as yet, with capital values in the Midtown office market rising by 9.4 per cent during the period. This is well ahead of the 8.0 per cent average growth rate of the central London market and has pushed values to an impressive 15.5 per cent above the previous high recorded in June 2007.
Unsurprisingly, this stellar performance has had a corresponding impact upon rental growth, which during the first half achieved the strongest rate in London. Average market rents in Midtown – where availability is at an all time low – rose by 6.8 per cent, with a similarly encouraging boost experienced in South Bank.
Investment partner at Farebrother and Union Street Partners, Alastair Hilton, believes that this trend will help to attract even more investors to Midtown and South Bank.
He says; “Midtown has been a strong location for both occupiers and investors since the market recovery post 2009, and this momentum is showing no signs of slowing down.
“The results of this report underline the performance credentials of both the Midtown and South Bank markets, which remain amongst the most sought after platforms in the capital for investment.
“Both markets are underpinned by limited supply within the background of historically low availability rates – asset pricing is now at a level where further yield compression is unlikely, so performance is more reliant on rental growth prospects and this is precisely what these markets offer.”
Although Midtown and South Bank are currently the stand markets, the larger central London office market remains buoyant nonetheless, with a total aggregate return of 9.9 per cent recorded in the first half. This was bolstered by a strong second quarter figure of 5.3 per cent, which built upon a more subdued 4.3 per cent figure garnered in the first quarter.
Hilton continues; “London is no longer all about the City and West End. Our capital city is beginning to evolve around a different axis, with new infrastructure and large scale development around Kings Cross, London Bridge and Farringdon giving the platform for Midtown and South Bank to take the stage as the true centre of London.”