Activity levels fell to £228m in Q1 2011 in London’s West End – a low that was last seen in 2004.

This is according to our latest research, UK Investment Transactions (UKIT) Q1 2011.

Ezra Nahome, CEO, commented: “Despite there being some cash rich investors in the market, the lack of available prime assets caused subdued activity.

“Many banks and UK institutions have already sold prime assets in Central London and those that do still own such assets do not feel any pressure to sell them because when such assets do come to the market they are achieving strong sale prices.”

Central London office yields increase

This low level of activity has led to a 30 basis point increase in Central London office yields. Both the City and Midtown office markets continued to see yields fall as investor interest in Central London offices remained strong. In the City yields averaged 5.5% in Q1 and 5.94% in Midtown, while the West End stood at 5.53% as demand for this area still remains strong.

Transaction volume falls

Across the UK, £8.4bn of transactions were recorded in Q1 2011, a 10% fall from Q4 2010, but some 16% up on Q1 2010. Increased activity from REITs was witnessed as they returned to the market after successful recapitalisation.

This activity included Hammerson (£277m), Derwent London (£82m), British Land (£81m) and Helical Bar (£76m). These transactions were predominantly focused on the City of London. Overseas investors accounted for 21% of activity, while UK Institutions committed £1.2bn, a 33% market share in the first quarter of the year. The major source of stock continued to be derived from the private sector, accounting for almost 40% of sales, which amounted to a net disposal of £1.9bn.

Market slows outside Central London

Office sector investments remained buoyant, with the City and Midtown being the main focus for investors accounting for 59% of activity. Outside of Central London the market slowed, most notably in the South East.  Distribution remained the main focus of activity in the industrial sector, accounting for 54% of all activity.

Ezra added: “Due to the strong recovery in manufacturing and exports we expect the demand for prime industrial space to strengthen. However, key to all of this is the availability of prime space and funding.”

Concluding on the outlook for the year, Ezra said: “As we progress through the year our expectation is that banks and UK Institutions will start to release more assets to the market.”