Office investment in South East exceeds 10-year average as local authorities continue to invest

New data from BNP Paribas Real Estate has found that office investment activity in the South East during 2018 totalled £2.796bn, surpassing the 10-year average by 11%. Recorded activity for Q4 currently stands at £724m, representing a 5% increase on Q3.

Notable transactions across the investor spectrum included the sale of Microsoft’s Campus, Reading, in a deal brokered by BNP Paribas Real Estate, for £100m to Valesco Group on behalf of Korean investors and the Equinox Portfolio, spread across the South East, purchased by ARES for £140m. In addition, Spelthorne Borough Council acquired Landid and Brockton’s South East Portfolio of three offices across Reading, Slough and Uxbridge for £285m, while M&G Real Estate recently purchased St. Georges House, Wimbledon for £52.72m reflecting a yield of 4.36%.

Prime yields in the South East now stand at 4.75% NIY, as predicted. As such, demand is expected to continue for prime assets in South East town centres, as investors are drawn to the income security and occupational stability when compared to London.

There has been growing demand from Local Authorities, who were the single largest investor group last year accounting for 33% of all purchases. Local Authorities have tended to invest in single-let offices both in and out of town, as they look for secure rental income, as mirrored by Middle Eastern investors, although council requirements are widening. UK Institutions continue to drive the prime market while US & Asian investors favour single-ownership business parks.

Although a number of notable business park opportunities came to the market during 2018, including The Heights, Weybridge, international investors have been cautious due to ongoing political uncertainty.

Hugh White, head of national office investment at BNP Paribas Real Estate, commented: “The South East office market experienced a buoyant 2018, marked by a number of notable sales and increased activity from Local Authorities. The prime market has been characterised by a flight to lower risk assets in strong locations, as investors seek security. This has led to yields on well-let stock compressing.

“Conversely, yields on part-let or short lease assets are reversing. For that reason, we believe well selected assets with these characteristics provide the opportunity for savvy investors.”