First quarter London office sales slump as mini-budget continues to hurt property market

Investor spend on London offices plunged by more than 60% in the first three months of the year new figures reveal, as volatility following September’s disastrous mini-budget continues to hurt the property market.

Preliminary data from property agent JLL shows £2.1 billion of central London offices were transacted in the first quarter, of which £1.4 billion was done in the City and the remainder in the West End.

That was down 63% from the same period in 2022, although the company pointed out that was a tough comparative given the strong demand then, with the large return to offices post-pandemic driving up volumes.

The latest figure is also much lower than the £3.4 billion recorded in first quarter of 2019 pre-Covid.

JLL said the muted performance follows a slow final quarter of 2022, and was in part due to the volatility surrounding the government’s mini-budget which hit confidence and saw higher mortgage costs. The UK housing market also suffered with builders reporting a slowdown in sales.

Julian Sandbach, the firm’s head of central London office markets, said: “Clearly the significant inflationary pressures seen building from summer 2022 and the corresponding rising cost of financing have impacted confidence and liquidity, leading to a more cautious environment.”

But the research predicts that investment activity will improve in the second half of 2023, with elevated capital flow from Asia-Pacific buyers, particularly those from Singapore and Hong Kong.

Although some investors are waiting to see how tenant demand will look as hybrid working becomes more popular, some are betting that modern properties will appeal to occupiers, even if the space is used for only part of the week.

JLL’s Sandbach said that despite challenges “London continues to see significant capital from overseas.” He added: “Much of the investment is channelled into high quality, well specified, environmentally enhanced offices, which is where there is strong focus from occupiers seeking to pre-lease and capital seeking to fund or joint venture. International and domestic investors remain focussed on attaining London assets and we expect to see investment volumes begin to increase in the coming months.”

Deals inked during the first three months of the year included Hong Kong-based developer Chinachem Group acquiring One New Street Square (pictured) for £349.5 million.

The office, which is close to Farringdon station, is home to Deloitte. When the purchase was announced in February Chinachem’s boss Donald Choi said the property is “located in the strategic Central London area with best-in-class building specifications and attractive returns”.