Thought of the Week
Despite sub-optimal conditions, office investment rebounds in Q1
May 1, 2025 4 Minute Read
The sharp and sudden rise in interest rates in the middle of 2022 has had a severely negative impact on Central London office investment volumes. The larger-end of the market, typically reliant on debt-backed investors, has been particularly negatively impacted. On average, only three £100m+ deals transacted every quarter between 2023 and 2024. In that time, no deals of £400m or larger completed.
A total of £5.2bn transacted in 2023, the lowest annual total since 1999. Volumes were lower still in 2024 at £4.9bn.
A strong start to 2025
In terms of cost of debt, little has changed as the calendar ticked over to 2025. Although they have fallen from their peak since the start of the year, interest rates have remained high throughout 2025 so far, with the five-year SONIA swap standing at c.3.8% in t he middle of April 2025. In addition, a great deal of volatility remains, with significant changes in the swap rate still occurring on a weekly and daily basis.
But the latest data shows us that investment volumes rebounded significantly in the first quarter of the year. Office investment in Central London totalled £2.4bn in Q1 2025, 115% higher than the corresponding period in 2024 and 49% higher than Q4 2024.
If the high debt cost environment has remained, what has changed?
The answer can be found by examining the deals that transacted during the course of the quarter. The quarterly investment volumes were driven by six transactions above £100m. Of those six, all but two were formations of joint ventures (JVs) or the purchase of a part share of a building.
Included within the number are the formation of two separate landmark JVs by NBIM with Grosvenor and Shaftesbury, and the sale of a 50% share of 2 Finsbury Avenue to Abu Dhabi new entrant Modon Holding.
JVs have led the way and there could be more to come
RLAM’s purchase of a 50% share of 1 Triton Square from British Land completed in the first quarter of 2024 can now be seen as a very important deal for this cycle and has paved the way for many others.
In the current environment, such arrangements can prove mutually beneficial to vendors and purchasers alike. The benefits to the vendor are that they are able to dilute their stake in order to de-risk but still benefit from any up-side potential and retain exposure to the market, plus they are able to receive an equity injection without turning to the debt markets. JV opportunities are an attractive option for investors wishing to increase their exposure to a particular sector or market by partnering with an established and experienced owner.
We expect JV opportunities, especially at the larger end of the lot-size spectrum, to continue to appeal to all equity investors, such as sovereign wealth funds and pension funds with global outlooks.
Thought of the Week
Contacts
Andrew Hawkins
Executive Director
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