New Cash Flows

If there is one figure that illustrates the fact that the world
is awash with money then it has to be Jones Lang LaSalle’s
estimate that there are 1,000 cash buyers for London property. As a result, JLL’s Damian Corbett believes that the London market will be flooded with international money in 2011 coming from 35 different countries.

These investors arenow prepared to spend £200 million each, a four fold rise in a short period. There has been a shift in the balance of cash flows with this year expected to see more dominance by Far East and German investors. In the case of the Middle East investors, the expectation is for a concentration on putting money into new developments as we have seen in the past few years, notably at the Shard of Glass.

One source of supply of properties will be Ireland’s National Asset Management Agency raising money to pay back bank debt. The British institutions should not be left out of the equation. For example the cash rich Legal & General is prepared to pay £300 million for Delancey and Invista Real Estate’s 110 Fetter Lane for a yield of 4.6%, the lowest in the City for four years. The 24,619 sq.metres (265,000 sq.ft.) property is fully let with the HM Courts Service occupying just over half of theoffices. There is a solid basis for the buying spree because figures from the IPD put the return on property in 2010 at 14.5%, the best for four years.

One of the more unusual deals is that Arab Investments is expected to sell GVA’s 3,855 sq.metres (41,500 sq.ft.) headquarters in Stratton Street, W1 to the Algerian Embassy for £60 million, a yield of under 4.47%. GVA’s lease has another four years to run and the property is expected to be redeveloped. But will it become an embassy for the Algerians? It comes at a time of growing confidence in the West End. Richard Scott of Mellersh & Harding said: “The market is more positive and the shortage of prime offices means we will see increases in rents. The bellwether for the current market is provided by 40 Bruton Street where rents have moved up to more than £1,022 a sq.metre (£95 a sq.ft.) rumoured to be well above that for the top floor.”