London development market sees transactions more than double to £1.8 billion in H1 2022
The latest analysis from the global real estate provider points to keen demand to create best-in-class assets from developers, with a strong occupational market and more than 80% of office lettings in London in 2022 for Grade A space further incentivising development and re-development opportunities. As such, Savills says pricing for such assets has resisted softening over the period, despite construction cost inflation.
The biggest deal of the period was 70 Gracechurch St, which Savills sold to Cadillac Fairview and Stanhope on behalf of Hong Kong’s Tenacity for circa £300 million. The next most sizeable were Derwent’s acquisition of Moorfields Eye Hospital for £239 million and the £150 million purchase of 99 City Road by Endurance Land – the one major Asian backed development deal so far this year.
Savills research shows the majority of buyers in 2022 have been UK (45%) and US domiciled (28%), with several also from Europe (12%). The firm accounts for very little Asia-based equity in the development market, reflecting a general preference for stabilised income producing assets.
Oliver Fursdon, head of Central London commercial development at Savills, comments: “The demand for development opportunities in London in the first half of 2022 has been particularly buoyant. Inflationary and financing pressures are becoming stronger across the London market, which we expect will take some of the heat out of the development land market in the short term. However, with a continued strong occupational story set against the persistent backdrop of tight supply of quality space, and London’s robustness and value in the European and global context, we expect transaction volume and value to hold up relatively well for the remainder of 2022.”
Jon Gardiner, head of Central London office leasing at Savills, adds: “We continue to see rising occupier demand for the very best office developments, both new or existing buildings that are capable of major re-positioning. This is fuelling demand from developers and investors for sites that are capable of delivering exceptional workplaces that offer outstanding amenity and the highest ESG credentials. Indeed, we are seeing greater focus on the positive social impact these developments can have on the surrounding community. These drivers alone make an exciting time for the development market with heightened competition to create the next cycle of London’s best office-led developments for future occupiers.”
Looking ahead, Savills says that with circa £1 billion of development deals currently under offer, and just over £1 billion of available stock being tracked in Central London, total year figures for 2022 are expected to fall shy of the recent annual average of circa £3.3 billion (with the exception of covid-affect 2020, which saw only £2.1 billion of development transactions). In 2022 YTD Savills is the leading agent advising on 35% of all deals completed.