West End beats slowdown in investment markets globally

Italian and Spanish investors seek international safe havens for capital

London’s West End has defied a slowdown in capital flows into European and UK property in the first quarter of the year. Agents and lenders report  growing interest in the West End from wealthy private European investors seeking a safe haven from a possible eurozone break-up.

Jones Lang LaSalle said all the world’s major commercial real estate markets were quieter in Q1 2012 after a busy Q4 2011. The firm’s preliminary Q1 2012 figures were $75bn – 23% lower than Q1 2011.

CBRE’s latest European investment quarterly says deal volumes in Europe fell to €24bn in Q1 2012, 18% lower than Q1 2011 and 33% down on Q4 2011. The Property Archive recorded a 12.4% drop in UK deal volumes from Q1 last year and a 28.4% fall on Q4 2011.

One originator at a London-based bank said: “Some UK deals  are being bought by wealthy European families who could be taking a view on the possibility of the euro collapsing. If their object is to get money into this country they don’t want to put debt on it.”

The March Budget introduced 15% stamp duty on £2m-plus homes bought via companies, which may cause syndicates of wealthy investors to switch from buying prime central London housing to forming bigger groups to buy prime offices.

Last week a private European investor advised by Savills bought multi-let West End building Stratton House, in Stratton Street for £166m, at a 4.2% yield. Vendor WELPUT did not identify the buyer, but it is thought to be Spanish.

Fund managers report similar interest. AXA Real Estate Investment Managers has set up  a pan-European core fund to buy offices for Italian investors, while Henderson expects to launch a pan-European core fund for Italian pension funds by the summer.

Arthur de Haast, JLL’s head of international capital markets, said: “This year is likely to be  dominated by policy responses to changing economic conditions. “For activity to surpass 2011 we would need to see more debt available globally and a sustained rise in secondary market deals, which we haven’t seen as yet.” Savills said in Europe last year, 80% of the total €101bn was invested in the UK, France and Germany, reflecting investors’ largely defensive strategies.