Investment volumes for 2011 grew 10pc on the previous year to £10.9bn as landmark buildings such as Tower 42 were acquired by foreign investors. A rush of deals worth £1.75bn were completed in the City in the final quarter of the year – despite the eurozone crisis worsening – as a wave of assets were put up for sale by Western institutions.
Property agent Cushman & Wakefield said £6.3bn of deals were transacted in the City, compared with £4.7bn in 2010. Asian investors, including sovereign wealth funds, accounted for 30pc of all deals.
Despite the increase in investment there are concerns that a bubble is developing in the City and West End that could be burst by a downturn in the global economy this year.
Rental yields on prime properties in the City are 5pc, and in places such as Bond Street in the West End they are just 3pc.
According to Knight Frank, demand from businesses to occupy office space in central London tumbled sharply last year because of the economic uncertainty. It said office take-up fell 27pc to 11m sq ft.
Few businesses in central London, particularly in the vital financial services sector, are expanding.
Developers such as Land Securities have started skyscraper projects to target companies whose leases expire at their existing office buildings. However, companies have been unwilling to commit to pre-lets at developments because of the economic environment.Clive Bull, head of central London investment at Cushman, said 2012 will be “tough” but that international investors will still target deals in London.