Central London is being targeted as a growth location by investors in contrast with poor prospects across the rest of the country, says Henderson Global Investors.

Despite the yield-driven recovery in UK capital values drawing to a close, Central London remains appealing because its global exposure provides commercial property investors with opportunities to diversify.

The research from Henderson observes that the sterling exchange rate against a basket of world currencies is still 14% lower than pre-crisis levels and this is leading to higher tourist spending, and the Olympic Games is expected to provide a boost to London’s retail and leisure sectors in 2012.

On a positive note, the report says that in terms of general economic activity, London’s economy will grow by 3.8% per annum, over the next five years compared with 2.5% per annum for the rest of the country

Henderson expects strong growth in Central London retail rents of 3.5% a year on average over the next five years, compared to 1.8% per annum for the wider UK market. There should be stronger growth in the earlier years, particularly while tourist spending remains strong and with the added boost from the Olympics in 2012. Looking further ahead, the property research team forecast more retail opportunities for investors higher up the risk curve. These may occur in off-prime pitches in which investors can expect a location discount, but where supply and demand influences are nonetheless compatible with rental uplifts.

Andy Schofield, director of research, property at Henderson Global Investors, said: “Although there are risks that the domestic economy and financial markets will experience greater volatility than usual, London office jobs growth should still improve gradually over the next few years and London should be a key beneficiary of the faster growth in global economic activity. London consistently ranks as number one on the Global Financial Centres Index. Overseas share of letting activity has accounted for around half of all City and 30% of West End take-up in recent years. Investors in Central London offices clearly believe in the growth story, in contrast to the bigger regional office markets where over-supply and waning occupier demand appears at odds with pricing”.