NEW DELHI, June 11
With the economy of the United Kingdom proving to be exceptionally resilient, having weathered numerous domestic and international shocks including Brexit, Covid-19, and the cost of living crisis, the country has underpinned its allure as a place for making connections, cementing its status as one of the few cities that can truly be called ‘global’. According to a report by Savoy Stewart, this is a prime time to invest in the UK office market. By 2030, Central London’s economic output is projected to surpass major global cities, including New York, Paris, Berlin, and Hong Kong. With forecasts indicating that the UK will experience a 1.9 per cent rise in Gross Value Added (GVA) between 2024 and 2027 – the value generated by the production of goods and services – this economic expansion is expected to fuel job creation and attract further investment in the UK office market, the report stated.
With companies investing in high-quality spaces to encourage employees to return to the office, office occupancy levels in London have seen the highest jump among European peers, the report by Savoy Stewart said. With increased demand for premium spaces in prime locations and a supply squeeze from a depleted development pipeline, competition for best-in-class buildings is intensifying. Currently, 37 per cent of the space under construction, and due for completion in 2024 across UK office markets, has already been snapped up by occupiers.
This supply and demand imbalance is expected to drive rents upwards, giving investors the opportunity for lucrative returns.
This is resulting in attractive prospects in the UK office market for investors seeking high income returns.
The prime office assets are projected to achieve annual total returns of up to 11 per cent by 2028, and key regional markets like Bristol, Cambridge, Edinburgh, Oxford, and Manchester, anticipated annual gains of 7 per cent.
Further, the Bank of England is expected to reduce interest rates later this summer in response to cooling inflation, which would mean lower borrowing costs. This, in turn, will allow investors to finance properties more affordably, favouring investors who are looking to leverage capital to maximise property investments as returns on investment (ROI) increase.
Besides, the UK’s office market has undergone a correction over the past few years, with prices and rents adjusting to new economic realities and work trends.
With global leading tech firms having invested over £2 billion in the UK in May, attracting major AI firms like CoreWeave and Scale AI to establish their European headquarters in the capital, London has solidified its status as a prime hub for global technology and innovation.
Over the past decade, London has outpaced all other global cities in attracting new international tech companies, with more than 1,700 tech foreign direct investment projects recorded since 2014.
This is despite global economic challenges, and it highlights the city’s resilience and enduring appeal as a destination for international tech firms. With the tech and AI sectors continuing to flourish, the demand for office space is expected to rise, especially in areas close to talent and collaboration hubs. This upward trend in demand is expected to boost rents and occupancy rates, presenting an enticing investment opportunity in the UK office market.
The convergence of favourable macroeconomic trends alongside an escalating demand for quality office spaces, positions the UK office market as a strategic investment opportunity with potential for long-term growth. Nevertheless, thorough due diligence and risk assessment are imperative, and investors must remain cognisant of emerging risks, like remote and hybrid work trends, which may impact office demand.
