Investor appetite for London offices is on the rise, but it’s the smaller deals that are driving the market.

After a quiet start to the year, the London office investment market is showing signs of life. The second quarter of 2024 saw a significant jump in activity, with £1.54 billion worth of deals completed, a 12% increase from the previous quarter. However, this is still well below the long-term average, reflecting a lack of large-scale transactions.

Smaller deals are the new big thing

While the overall investment turnover is down, the number of individual transactions is increasing. This is being driven by UK buyers, who are snapping up smaller assets. In fact, over two-thirds of the deals in the first half of 2024 were for properties under £25 million.

West End remains a hot spot

The West End continues to be a popular destination for investors, with turnover reaching £2 billion in the first half of the year. This is a 15% increase on the same period last year, although it remains 40% below the long-term average. Despite this, there is strong demand for West End properties, with a 30% increase in the number of assets changing hands compared to the past five years.

Big deals are starting to reappear

The second quarter also saw the first £100 million-plus transaction of the year. The Yellow Tree Group purchased the freehold interest of Herbal House in the City of London for a cool £100 million. This deal could signal a return of larger transactions in the second half of the year.

Looking ahead

Richard Garside, Head of Central London Investment at Savills, is optimistic about the future. With interest rates expected to decline further, a strong office market and the general election behind us, he believes London is becoming an even more attractive investment destination.

Key takeaways for investors:

• While overall investment turnover is still below long-term averages, activity is picking up, particularly in the smaller asset market.
• UK buyers are dominating the market, with a strong appetite for smaller properties under £25 million.
• The West End remains a popular investment destination, with strong demand despite a lack of larger transactions.
• The return of £100 million-plus deals could signal a shift towards larger transactions in the second half of the year.
• The outlook for the London office market is positive, with factors such as declining interest rates and a strong occupational market making the city an attractive investment destination.