Which London office deals are on the horizon?
So far in 2018 the London investment market has been characterised by large value deals, but low volumes, as vendors choose to hold on to assets in an uncertain market with little distress and few reinvestment opportunities.
Investment into London’s office market totalled £7.2bn across 81 deals in H1 2018, compared with the first half of 2017 when 100 deals totalling £6.8bn were transacted, according to Radius Data Exchange.
In the City of London – the capital’s office market driver – 72 deals were conducted in the year to July 2018, compared with the year to July 2017 when 83 deals were transacted. This is despite the level of investment being broadly in line with previous years at around £6bn, research from Savills showed.
So far in 2018 the London investment market has been characterised by large value deals, but low volumes, as vendors choose to hold on to assets in an uncertain market with little distress and few reinvestment opportunities.
Investment into London’s office market totalled £7.2bn across 81 deals in H1 2018, compared with the first half of 2017 when 100 deals totalling £6.8bn were transacted, according to Radius Data Exchange.
In the City of London – the capital’s office market driver – 72 deals were conducted in the year to July 2018, compared with the year to July 2017 when 83 deals were transacted. This is despite the level of investment being broadly in line with previous years at around £6bn, research from Savills showed.
Investors from Asia dominated the City office market accounting for 58% of investment volume totalling £33.6bn.UK investors accounted for 21%.
Chris Brett, head of international capital markets UK at CBRE, said: “There is approximately £37bn of equity still targeting London, which provides us with the knowledge that global capital is continuing to see opportunity across our market.”
He added: “Dominated, as it has been for a number of years, by a variety of international investors, the global position of London remains solid.
“The central London office market continues to display healthy levels of activity and we see this continuing through to the end of 2018.”
With Brexit on the ever-nearing horizon, could now be the optimum time for vendors to pitch assets on to the market before any whisper of economic recession hits? Or will potential buyers, particularly those from overseas, decide to wait till next year before acquiring more central London office assets on the chance sterling may enter another downward spiral, offering an even better currency advantage?
Here are EG’s predictions of what might come up for sale before the year is out.
55 Gresham Street, EC2
A hotbed of investment activity, Gresham Street has most recently seen Samsung Life Insurance via CBRE and Knight Frank search for offers of around £425m for 30 Gresham Street, while at the end of last year China’s Hengli Investments Holding snapped up 25 Gresham Street, the HQ of Lloyds’ Banking Group for around £160m.
Surely then there is a buyer looking for long-term income at Anglo Gordon and Beltane Asset Management’s revamped 55 Gresham Street?
The entire building has already been pre-let by Investec Asset Management, which earlier this month agreed to occupy the 121,600 sq ft of office space being created at around £65 per sq ft on a 15-year lease.
Based on a yield of 4% it could be worth £200m.
Sanctuary Buildings, SW1
Blackstone re-signed the Department of Education for another 15 years at the Sanctuary Buildings on an increased annual rent of more than £50 per sq ft, putting its plans for a potential revamp of the 225,000 sq ft building permanently on hold.
The office block in Victoria was purchased from Tishman Speyer in 2014 for £175m representing a 5.6% yield when it had only three years left on the lease.
Based on a yield of 4.5% now that it has been regeared, it could be valued at close to £300m.
Blackstone has been slowly exiting its mature London office assets, most recently off-loading the Adelphi, WC2, to the world’s sixth richest man Amancio Ortega’s investment vehicle Pontegadea for £550m.
The fund manager’s London office portfolio currently also includes three office blocks in EC2 – 125 Old Broad Street, Alban Gate and Broadgate Quarter – as well as Building 7 at Chiswick Park, St Katharine Docks, E1, Times Square, Ec4, and 25 North Colonnade.
Wembley Stadium
The Football Association is looking at selling the home of English football and temporary refuge for Premier League team Tottenham Hotspur while its troubled revamp of White Hart Lane continues.
The FA is desperate for cash to make it a more profitable organisation and to enable it to increase investment into areas such as community football.
An offer of £600m has been received from Pakistani-American billionaire Shahid Khan, which Martin Glenn said in a statement on 29 May was “considerably higher” than a previous offer and came about after months of work by adviser Rothschilds.
Wembley Stadium has public money tied into it, and any potential sale needs to be open and competitive. It is expected that entertainment specialists AEG and Madison Square Garden Company could be in the running should a formal process kick off.
Glenn added in the statement that as of the 29 May no other offers had been received, but said that the FA would be ready to work with other buyers.
Any sale of Wembley Stadium also comes with the restrictions, including usage in terms of number of events per year, any potential name change, resale options, and the availability of a Royal Box. These will all remain in place through to 2057, imposed by the use of £161m of public money, which was used to help fund the stadium’s most recent £757m revamp carried out in 2007.
FT HQ, SE1
Pearson, the former owner of the Financial Times, is still weighing up its options, but it is looking at a potential sale of the its HQ at 1 Southwark Bridge, SE1.
The FT, which Pearson sold in 2015 to Japanese media company Nikkei, is due to vacate the 154,505 sq ft 1980s-built office space next year.
The site is ripe for redevelopment, in 2015 however, at the time of the sale of the newspaper, Southwark Council told Pearson that any redevelopment of the building would need to retain or increase the office space it provides in addition to any other uses.
Pearson is also considering options for its own headquarters at 80 Strand, WC2. This includes subleasing the building or transferring its entire leasing commitment to an investor.
Earl’s Court
Something has to happen before the end of the year with Capital & Counties’ 77-acre development plot in West London.
The value of the languishing scheme to create several thousand flats on the site, which includes the former Earls Court Exhibition Centre, has dropped by half since 2015 from £1.4bn – prior to the sale of the Empress State Building in February – to £707m in June.
CapCo has confirmed it is evaluating its options, which include a demerger of the business to unhitch the development from its holdings at Covent Garden. Berkeley is reported to be eyeing up at least strips of the development.
However, any changes to the masterplan would mean striking a deal with Hammersmith & Fulham Council, which has already rejected CapCo’s suggestion of upping the number of homes from 7,500 to 10,000.
The council also wants back the 22 acres of land that house the West Kensington and Gibbs Green Estates, which were added into the Earls Court masterplan in 2013 via a conditional land sale agreement in return for a cash consideration of £105m plus the re-provision of 760 homes for the estate’s residents.
One Bartholomew Lane, EC2
[caption id="attachment_941990" align="aligncenter" width="847"] The offices face the Bank of England[/caption]
Hines’ 10-storey office building faces the Bank of England.
Tenants of the 76,418 sq ft office include investment bank and stockbroker N+1 Singer, Korea’s sovereign wealth fund, the Korea Investment Corporation and the Agricultural Bank of China.
Hines is understood to be looking for around £110m.
The company is also in the process of selling Sixty London in Holborn to Norges Investment Bank for around £330m.
Knight Frank and Cushman & Wakefield are selling the 235,637 sq ft building, let to Amazon and Drake & Morgan.
Smithson Plaza, Wc2
Tishman Speyer is expected to complete its revamp of the former brutalist home of The Economist by the end of the year and already has the top three floors under offer at more than £150 per sq ft.
The three-building complex in St James’s was acquired in 2015 for a reported £130m as part of Tishman’s value-add fund launched in 2014.
Once the revamp is complete the firm will decide whether to sell it or recapitalise it and keep it longer term.
Meanwhile, Tishman is expected to shortly complete the sale of Victoria office block Verde to Deka for more than £450m.
100 Regent Street, W1
[caption id="attachment_942007" align="aligncenter" width="847"] Denis Jones / Evening Standard /REX/Shutterstock[/caption]
ne of only two buildings left in the CPPIB and Hermes Real Estate Investment Management joint venture, which has steadily been sold down, is 100 Regent Street, W1.
Formed in 2013, the jv’s other asset is the South Bank, SE1, the former King’s Reach Tower and home of IPC.
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