19 May 2015

Midtown and South Bank represented London’s two standout office investment markets in 2014, according to new research by Farebrother, Union Street Partners and MSCI.

The Farebrother Union Street Partners IPD Central London Office Investment Report 2014, shows total returns for Midtown soared to 26.6% (compared to 16.7% return in 2013), closely followed by South Bank, which delivered returns of 24.8% (compared to 18.8% return in 2013).

Both markets comfortably exceeded returns posted by the traditional West End and City market heavyweights, which posted returns of 23.7% and 21.5% respectively.  

Midtown and South Bank’s strong performance was the highlight in a very positive year for property in central London, with overall office returns at 23.7%, representing a considerable leap from the previous year’s 15.8%, affirming that the capital’s commercial property boom is continuing apace. The aggregate return for all UK offices was 22.7%.

Rental growth across central London offices continued to accelerate, with the South Bank recording the leading rental value growth in 2014 at 16.8%, comfortably outpacing the already strong 10.9% average growth rate for London as a whole. Midtown also recorded strong rental performance at 12.8%, with both outperforming growth across the established West End and City markets, at 10.4% and 10.5%.

Overall in 2014, total returns from real estate reached 17.9% year-on-year, outpacing both UK Equities and UK Government bonds, which returned 12.9%. Property Equities outperformed all the main asset classes with a return of 24.4%.

Warming investor sentiment was reflected by the compression of yields, with Midtown offices recording the largest price shift as yields fell from 6.0% to 5.2% in the space of 12 months. South Bank recorded a similar shift in pricing, with yields declining from 6.6% to 5.9%.

Continued yield compression underlined intense competition among the investor community for assets, and with opportunities in the market at a premium, investors were prepared to bid aggressively to gain exposure to the market.

Alastair Hilton, Partner at Farebrother & Union Street Partners: “This research dispels any lingering misconceptions that Midtown and South Bank are anything but core, premium markets. The established City and West End markets are performing well in their own right, but it is Midtown and South Bank which are delivering the returns which are indicative of what are essentially underdeveloped markets.

He continued: “Availability remains low in both markets, but quality of stock is rising inordinately, driving the area’s popularity among occupiers. Combined with the Crossrail effect and cultural renaissance, the east (city) - west (end) blinkered view of the capital is transforming to a new north-south axis, with the capital’s spine running from Kings Cross, down through Midtown and over the River to the South Bank.”

Colm Lauder, Senior Associate at MSCI, added: “2014 marked a significant turning point for the UK commercial property market, with sustained growth in capital values and the spread of rents nationwide. Unsurprisingly, London continued to lead UK real estate performance, with Midtown and South Bank the standout markets in the capital in 2014.”

He continued: “A positive, dynamic economic climate likely boosted sentiment towards investment in real estate, as expectations for future rental value growth encouraged bidding at higher prices, and on riskier income streams.