More than half the £5.9bn of London office assets that were on the market in May have failed to sell six months later, according to analysis by Great Portland Estates.
In the presentation for its half-year results, the London specialist estimated that £2.8bn worth of property had sold while £0.9bn had been withdrawn and £2.2bn had yet to sell.
It added that since May the volume of stock on the London market had rocketed to £11.1bn as owners looked to cash in on strong demand from overseas buyers taking advantage of the weak pound.
GPE chief executive Toby Courtauld said these buyers were focused on “shiny long-income” buildings and that there was “much less dynamism” at the secondary end of the market.
Courtauld predicted that the emergence of this two-tier market would influence pricing.
“We have the highest on-market total for a very long time indeed,” he said. “Plus, we estimate there is a further £7.6bn available off-market, meaning that we can surely expect the prime to secondary yield gap to widen.”
Graph - Assets for sale May 2017
He added that “we are beginning to sense a bit of realism” from sellers of secondary assets.
Tony McCurley, co-founder of GM Real Estate, agreed and said a growing price gap between prime and secondary was “overdue”.
“We are coming back to a more traditional investment market with a widening difference in pricing between prime assets and value-add or secondary located opportunities,” he said.
“Grade-A assets that are freehold and securely let are still attracting a great deal of interest and we see no sign of this changing. However, investors are becoming increasingly discerning so anything that is, say, leasehold with a heavy gearing or requires some capital expenditure in the short term needs to be priced for a different audience.”
James Abrahams, equity partner at Allsop, added that some secondary assets were “sticking” due to high valuations, but a sense of realism had started to set in with vendors.