An IPD/ Levy LLP study of commercial property performance across London has shown that fringe locations are outperforming the traditional markets in many cases.
While the overseas funds, which are currently responsible for much of the investment in London, may favour ‘trophy’ locations like the West End and the City, the study finds that the fringe markets are delivering above average returns.
A significant factor attracting investment in peripheral locations is the capital’s growing tech sector. In fact, at 23 per cent, the Northern Fringe of Shoreditch and Spitalfields delivered the highest returns in London last year.
The impact of the tech sector is emphasised by Google and Facebook taking space at Kings Cross and Euston respectively, raising the profile of the locations and attracting further investment.
Other fringe markets performing well include Camden and Paddington which both delivered returns of over 18 per cent, which compares favourably with the London average of 14.2 per cent.
Traditional locations regarded as safe havens by investors continued to perform well buoyed by the flood of overseas investment. The West End district north of Oxford Street delivered returns of just over 19 per cent, while Mayfair followed closely on 18.5 per cent.
Returns for the City, on the other hand, were 12.1 per cent, while Victoria fell to 11.3 per cent. Even more challenging for investors looking to secure income streams are the Mayfair and Soho markets where returns of just 3.6 per cent and 3.7 per cent were recorded.
Phil Tilly, of IPD, said; “London is the single largest real estate investment location in the world, but it is all too easy to forget the massive difference in performance from one district to the other.”
Simon Heilpern, of Levy/LLP, cited Crossrail as a major factor driving commercial development and tenant demand in fringe locations.
“As travel times diminish London is expanding rapidly into peripheral areas that are illustrating the strongest total returns from their modest traditional base values,” he said.
“In depth knowledge of the ‘micro’ markets is essential to identify the locations that are most likely to provide optimal investment performance.”
