Funds still keen on South East offices – CBRE
Despite the cautious market environment, CBRE says UK funds are still keen to invest in the South East office sector and are expected to bid aggressively for good-quality properties during the final quarter of 2011. The firm says it has seen more than £1bn of deals transacted in the South East since the start of the year and believes the region is faring well during the current economic uncertainty and market volatility. CBRE expects domestic and international funds to look seriously at the market for office space in the South East during Q4, as Grade A occupier demand is robust and yield prospects are currently higher than for the West End and the City.
Mark Routledge, executive director of capital markets at CBRE, said: “With the FTSE losing 15.6% in value at the start of August, naturally investors and vendors are approaching the coming months with caution. However, a hardening of yields in the South East means that the market is now trading at parity with the regions for the first time since 2007. There remain a number of prudent investment opportunities in the market, and we are advising on several prime opportunities which are currently under offer, likely to complete in the next couple of months.”
CBRE notes that Davidson House in Reading recently set a benchmark yield for the South East for the length of income. The deal, which completed in August, had a net initial yield of 6.4%, compared with a quoting net initial yield of 7.27%, which CBRE says demonstrates the strong institutional demand for high-quality office space in the South East region. Yields for prime office property in the M25 and South East areas have remained around 6.25% for the past 18 months, but have since compressed to 6.00% as a result of deals such as Davidson House. CBRE expects yields to come under more pressure towards the year-end as the occupier market improves and demand continues for the dwindling stock of Grade A properties – but it stresses that this is only the case for the best properties on the market. Secondary yields are expected to continue to lag, and the yield gap to continue to widen.
