London Properties Have Recovered And Provide Stable Contributions
SUN opportunistically acquired Nova Properties and Minster Building in London during
the COVID-19 pandemic. London has weathered Brexit, the COVID-19 pandemic and the
switch to hybrid working. The recovery in take-up for office space was broad-based but
was strongest for the West End at 24% above the 10-year average. SUN’s recovery was
driven by office and retail properties in Singapore as London accounted for only 11.5%
of portfolio valuation. Maintain HOLD. Target price: S$1.73.
WHAT’S NEW
• Central London office market on the mend. Take-up in Central London totalled 3.8m sf in
2Q22, an increase of 123% yoy and 24% above the 10-year average. It was a strong quarter
for pre-letting, which accounted for 10 out of 11 leases of more than 50,000 sf in size. There
is flight to quality as occupiers prefer new and high-quality office space.
• Recovery was strongest at the West End. Take-up for office space has rebounded back to
pre-COVID-19 levels. The recovery was broad-based but was strongest and fastest for the
West End. Take-up for the West End during the past 12 months was 24% higher than the
10-year average. The recovery was driven by the financial services sector, especially in the
core markets of Mayfair and St James. According to Cushman & Wakefield, prime office
rents have increased by an average of 7.2% over the past 12 months (City Core: +9.3%,
West End: +8.8%, East London: unchanged).
• Hybrid working did not reduce demand for office space. CBRE has analysed leasing
data for Central London during the past 12 months. Occupiers moving to new office spaces
on balance are increasing their space requirements. There are more tenants expanding than
tenants contracting. CBRE surveyed 68 tenants who executed new leases. Of these, 39
tenants took up more office space compared to 29 who downsized. The study demonstrated
that hybrid working did not reduce demand for office space.
• Differentiating London from continental Europe. The UK government plans to overhaul
regulations to reclaim London’s title as the busiest financial centre in the world. It intends to
ease regulations for banks, insurers and fund managers to reinvigorate the financial services
industry post Brexit. Regulations on a wide range of services from IPOs to green finance
must be rewritten to replace existing EU regulations. Potential new regulations include
reducing the amount of cash reserves that insurers need to hold and providing flexibility for
insurers to invest in infrastructure projects. Regulators will also be made accountable to a
secondary objective of promoting economic growth.
