Temporary Dislocation for London Investment

COVID-19’s impact on global capital markets this week has been unprecedented. The combined dislocation in equity markets, oil, treasuries and gold/silver moving down in price together, signalled a strong desire for liquidity and freezing credit markets. 

The G7’s central banks response has been coordinated and equally awe inspiring. The Bank of England (BoE) injected adrenaline directly into the heart of the UK economy with a massive £200bn of bond buying. The Chancellor, Rishi Sunak, committed to a £330bn package of direct fiscal and economic support to the UK economy and business community. The BoE cut interest rates by 0.15% to 0.1% - the lowest in the central banks’ 325 year history. Sterling having been hammered (dropping by 7.5% vs the Euro and 9% vs the Dollar) stabilised at the end of the week, as the financial medicine has begun to work.

Against this backdrop, London real estate and its capital markets have naturally moved into a new cycle. Whilst cycles are of course different, some patterns do emerge. This week has involved similar patterns to previous cycles that your bloggers have experienced in the 80’s, 00’s and the GFC.

It is fair to say investors are “all over the map” with their approach to market conditions. Some investors have run the whole five stages of grief. Some are paralysed. Some “risk off” whilst others are hunkered down and ready to sit it out. In contrast – others are opportunists and want to buy whilst fear stalks the market.

These are not unusual reactions and whilst the epidemical circumstances of this correction may be unique ultimately, it is a cycle and for those more sanguine, they recognise that the dislocation is temporary.

Central London Investment Volumes 2020 VS 2019


In a world where the risk-free rate has gone negative, the spreads offered by commercial real estate are even wider. Real estate as an asset class in times of crisis takes on a greater allure for many. It’s physical attributes as a tangible asset are an attractive store of value vs corporate paper which is highly volatile and already negatively impacted.

The year began with a huge “Boris Bounce” and paradoxically volumes are 65% ahead of the same period last year.

Availability Has Decreased by 37%

Against this backdrop those sellers who have the luxury of time have withdrawn their assets from the market. Availability has dropped by 37% meaning viable opportunities are even less. 

 Transactions are still proceeding but it very much depends on the individual motivations of vendors and purchasers, which vary from deal to deal. It is very difficult to generalise or decipher a trend this early in the disruption. However, we estimate that broadly a third of transactions remain on track, a third are under review or subject to pricing conversations and a third are faltering. We should have a broader data set to verify this assessment next week.


Key Highlights from March

Sanctuary Buildings, London
Sanctuary Buildings

Acquired by L&G (£300m / 3.97% / £1,330 psf).
Watermark Place
Watermark Place

Remaining 50% stake acquired by Union Investment (£252m / £4.76% / £933 psf).
130 Wood Street, London
130 Wood Street

Acquired by Japanese investor (£51.25m / 4.25% / £884 psf).
90 Bartholomew Close
90 Bartholomew Close

Aberdeen Standard Investments is no longer progressing with the purchase. The property has been withdrawn from the market (previously under offer at c.£50m / 3.88% / £1,618 psf).
Eversholt Street, London
Eversholt Street

Second round bids postponed and Aviva Investors have subsequently withdrawn from the market (quoting £105m / 5.12% / £947 psf).

In addition to the above, we are aware of continued competitive bidding on a number of assets in the last 24 hours. The bidder universe is definitely not as deep as it was two weeks ago. However, there is clear evidence of demand from investors less dependent on debt and more typically comfortable with opportunistic investment. The more robust investors see the lack of competition as an opportunity. 

London continues to show its resilience as the most liquid market in the world and bidders remain global from the US, Canada, France, Germany, Hong Kong, Singapore and Korea. The market remains active and Cushman & Wakefield has been involved in a competitive bidding situation with 3 other Investors in the last 24 hours.

London’s fundamentals going into this cycle were robust. Office supply remains tight and we are also aware of occupiers competing. Arguably the sterling devaluation against the dollar to the lowest in a generation, the tremendous governmental monetary and fiscal stimulus and the pent-up investor demand will bode well for a time when investor confidence returns.

We should also spare a thought for the retail, hospitality and F&B sectors in London which are being forced in the main to shut. It will take a tremendous combined effort by tenants/operators, the landlords and the lenders to ensure business continuity prevails in the medium term. This will require a sharing of the burdens from COVID-19 fall out. Needless to say and thankfully the early signs of Governmental intervention appear more interventionist. Unlike the GFC when the profits were privatised and the losses were publicised – let’s hope this time around there is an equal sharing of the cost from all sectors of government, business and society able to afford it.

Different opinions are what makes a market and what your writers have learnt, is that volatility over the last 3-4 years with Brexit, currency impacts and political changes is the new norm.

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