Middle Eastern investors will inject roughly £2 billion ($2.5 billion) into London’s best offices this year to capitalize on values bottoming out, according to broker Knight Frank.
Gulf institutions are looking take advantage of lower prices, strong rental growth and reduced borrowing costs, the broker said in a report, which identified a total of £5 billion set aside by 80 investors globally for so-called core London offices.
These assets have been defined as large, green offices with long-term leases and modern workspaces. Core deals accounted for just £1 billion of London investment transactions in 2024.
“The market can only ignore for so long a severe occupational supply shortfall and rising rents on top of a major correction in prices, and we are now seeing that now change,” said Nick Braybrook, head of London capital markets at Knight Frank. “The first month of this year has already seen two very substantial sovereign wealth fund investments into London offices.”
The pandemic accelerated a shift in London’s office market that’s seen demand concentrated in the most centrally located, well furnished and environmentally sound buildings. Interest has remained robust, even as increased home working has cratered demand for older buildings.
All-in borrowing costs for prime London assets are about 5.5%, down from a peak of 7% in 2022, making larger deals more attractive, Knight Frank said. Over the past five years, 77% of London office occupiers vacated on expiry of their lease, compared with about 50% over the past 25 years, pointing to a transition to higher quality space, the broker said.
“More businesses than ever before are looking to upgrade their corporate headquarters,” said Philip Hobley, head of London offices at Knight Frank. “The growing momentum behind office-first work policies is underpinning both investor and developer confidence.”
