Capital Markets Review 2016

For well documented reasons, 2016 was a game of two halves, so what were some of the notable statistics for the year? I set out below some thoughts and conclusions on a challenging year for the City and City Fringe and, taking a deep breath, make some suggestions as to what might happen in 2017.


  • While Brexit was a significant factor, low volumes and price correction from the beginning of 2016 were also consequences of the market peaking in 2015.
  • Overseas investors played the classic Time Trial negative split, conserving funds ahead of the referendum, but using the strong tail winds of currency swing and favourable pricing to surge for the line in the second half of 2016.
  • The USA, China and The Middle East were the main players, but overall, the market was dominated by overseas buyers in the second half of the year.
  • The low vacancy rate was a factor in maintaining headline rents at broadly the same levels post referendum and this helped falls in capital values to settle in the range of 5 – 10%.
  • The slow pace of Brexit negotiations has helped allay the fear of a mass exodus of city financiers. Most simply don’t believe that there is sufficient appeal or infrastructure in Europe to support a big influx of city bankers and other occupiers.
  • New York may be a different story.
  • The market remained strong for prime lots under £30m. Although foreign investors still dominated, UK private investors were still active in this sector.


  • Despite the slow pace of Brexit negotiations, for the moment, the market has found its level post referendum, but the activation of Artcile 50 may lead to another hiatus.
  • The Central London story of a mature, transparent market will continue to appeal as a safe haven to overseas investors.
  • France and Germany will be ignored this year as elections take place in these two countries, so the only significant external threat to investment in London will be if Trump’s election has a positive effect in the USA, in particular New York.
  • The market will continue to see new entrants, particularly from China and Hong Kong.
  • Will the big REITS return to the market in 2017? Only GPE and Derwent London seem inclined to do so at the moment.
  • New supply will continue to pre-let during construction maintaining the low vacancy rate for this sector, but grey market space may well increase the overall level of supply and lead to a softening of rents for second-hand space as tenant landlords seek competitive deals.
  • Some fringe locations will be affected by increased rates when the 2017 list comes into effect in April.
  • Good quality small units in the City core will continue to be in demand as supply remains tight.
  • Serviced offices will continue to flourish as working patterns change and an uncertain outlook requires business to seek flexible and co-working solutions.
  • Headline rents in the City Core for Grade A stock will most likely hold firm, but much of this will be due to limited supply rather than increased demand. Inducements will continue to move out and, if we see significant grey market space added, then most other sectors will see a softening in rents.
  • Rents in The Southbank, Farringdon and Clerkenwell will remain stable, particularly where properties are close to infrastructure such as Crossrail, but other fringe areas could be more vulnerable.
  • Prime yields will soften over the course of 2017. While there will be a number of factors that affect this, a great deal will depend on whether we see the first increase in base rates since May 2009. Likely range of movement is 25-35 bps.
  • Notwithstanding this, we expect the smaller lot sizes of up to £30m and long income stock to outperform as overseas and UK investors compete in this sector.

For those of you who want some more detailed statistics, a separate document is available on request summarising some statistical highlights from our friends at CoStar. Please contact either or if you are interested in receiving this.