London is world’s largest property investment market for second year

London retained its title as the largest global property investment market for the second year running with the city’s 2010 commercial real estate turnover rising 16% on 2009.

Greater London saw £13.3 billion invested or contracted, while Central London saw £9.9 billion. The office sector was dominant, with £8.5 billion invested. The UK capital was followed by Tokyo in second place and Paris in third.

According to Clive Bull, head of Central London investment at Cushman & Wakefield, London is clearly seen as one of the safe havens of the global market, with strong interest from a still growing range of buyers from all corners of the globe.

‘To many private buyers, domestic and overseas, it is the combination of safety and a higher income than they can get on cash in the bank which is attracting them to London,’ he said.

‘While the city has traditionally been one of the first ports of call for investors looking at Europe or investing internationally for the first time, in this cycle it has also enjoyed an earlier occupational market recovery and a supply squeeze in the next couple of years points to further good rental performance ahead,’ he explained.

'This will keep investors coming and with more investment opportunities as banks work through their loan books and some profit-takers come forward, the stage is set for an even more active year in 2011 with our current prediction being for volumes to rise to around £12 billion for Central London,’ he added.

David Hutchings, head of European Research at Cushman & Wakefield pointed out that London’s market has seen prime rents rise 23.4% since its low point in 2009. This compares with 2.1% for global office markets and just 1% in Europe, with much of Western Europe yet to see any growth at all.

‘Even more extreme has been the out-performance of London’s retail market, with the best streets continuing to see excess demand and rental growth even through the recession, as cheap sterling helped London cement its position as one of the key global hubs for retailers. Global retail rents are 4% below their 2008 peak while London is ahead by 7.1% on average,’ he said.

While investment activity fell drastically in London when the credit crunch hit, the market managed to maintain greater liquidity and recover more rapidly than many competing global markets. ‘It is clear that to today’s investor, size matters more than it did before, keeping the spotlight on London,’ said Bull.

According to Hutchings as recovery takes hold, more investors will seek out growth not just security as shown already by the steady rise of Asia as a target. Just five years ago only three of the world’s top 20 markets were in Asia but this year it rose to eight versus just five in Europe and seven in North America.

‘However while the economic and macro business environment in 2011 should be less scary, it is still going to be uncertain and this should keep core investors focused on the least risky markets. So long as the investment community has faith in the UK governments’ debt reduction programme, these will very much include London,’ he explained.

‘Growth will be held back by financial sector changes and government cutbacks but these are hardly unique to London and what is more, the retail sector can look forward to a boost from possibly two royal weddings,’ he added.