NO SNIFFLES IN LONDON OFFICE MARKET
When the London office market sneezes the UK office market catches a cold – is the belief.
The UK’s office market has certainly caught a cold bordering on the ‘flu but it seems that the London grade A office market has avoided the sniffles – or, to use another metaphor, it has weathered the economic storm, which has to be good news all round.
Contrary to predictions made in 2009 by industry commentators, which forecast an Armageddon for the City, Hatfield Philips believes that, in terms of specific markets, and within the context of Europe and the rest of the world, the financial services sector and London have managed to remain decidedly buoyant.
The special servicer believes that grade A office space in London has proved to be particularly robust and that demand will continue to be strong well into 2010.
Matthew Grefsheim, director, special servicing, states: “A grade office space is down from the peaks but it has been performing fairly well of late. Investments with long-term covenants are proving to be very attractive in the current markets. Whilst a pension fund may struggle to find a yield of 4-5% in other assets, a 5.5-7% is not an unrealistic figure for grade A space. We are also seeing some very resilient trends in the new build sector, which I believe will continue throughout the next year.
“For people and funds seeking higher yields, B grade assets are also proving attractive and I foresee an increased demand: firstly, because the current stock is undervalued and therefore has upside potential; and secondly, because some assets have been poorly managed and buyers with the relevant in-house or outsourced capability see upside opportunities.”
