Investor spend on the London office market fell by £3.9m in the last quarter of 2020 but hopes of a Covid vaccine have led to a flurry of deals, according to new research.

Property agent CBRE has released provisional data that shows £8.9bn of investment in offices, stores and office and retail development sites in the capital in 2020, down 30% on the previous year. However, the final quarter of the year showed clear signs of a recovery with investment volumes totalling half the year's total volume at £4.5bn.

There have been concerns about longer term disruptions to office working patterns. Travel restrictions have also made it harder to get property deals over the line as investors adopted a wait and see policy. Nevertheless this represents the biggest quarterly total for the whole of 2020.

Fourth quarter deal

Deals in the final quarter of 2020 include Sun Venture's £552 million acquisition of office buildings 1 & 2 New Ludgate from Landsec. £1bn was transacted in November followed by a further £2.2bn in December.

James Beckham, head of central London investment at CBRE, said the bounce back showed there was still a pent up demand from investors and that volumes would be expected to recover over the next 12 months. Despite a slow start, the Covid vaccine rollout and the conclusion of the Brexit talks meant investors were committed to deploying their capital in 2021.

Beckham believes that investors from around the globe are taking a long term view of the office investment opportunities in London. And with reports that the Cheesegrater has just achieved record office rents for the City of London, the demand for premium office space seems to be holding up. 

An unnamed company will pay £110 per square foot for office space at the Leadenhall building, while Savills has also confirmed the uptick in demand for London office space at the end of 2020. And while some firms are expected to embrace more flexible working arrangements in the post-Covid era, some bosses continue to believe that the office will remain important to their business.

Diverse investor base

In London's West End, the picture shows a more diverse investor base, according to Nick Pemberton, a partner at Allsop. He pointed to a strong demand from both Europe and Asia in 2020 with the trend expected to continue in 2021 as London buyers look to invest long term in premium office space.

Meanwhile, BNP Paribas Real Estate estimates that around £3.7bn of office space is currently under offer in the City and West End, despite concerns about the impact of remote working. Simon Glenn, head of London markets, said that company bosses were increasingly recognising the value that office space could add to their company.

While working from home has grown hugely during the coronavirus pandemic, many in the business feel that the office has a critical role to play in company culture and building a brand, something that can't be replicated by remote teams.

Estate agents remain confident that the London market will remain highly attractive to investors as the UK emerges into the post-Covid world.