October turnover exceeds £1bn as the market continues to absorb more core assets
In a sign of continued liquidity and sustained investor appetite for core, well-located assets, investment turnover in October reached £1.09bn, spread across 10 transactions.
Whilst cumulative annual turnover (which now stands at £2.97bn) remains 50% below the previous five years’ average, this was the highest October volume ever recorded in the West End and represents 37% of the total annual transaction volume to date.
The marked increase in activity can partly be attributed to investors’ continued appetite for, and arguably heightened focus on, prime assets but also to the scale of some of the transactions in question; these included a 50% interest in The Nova Estate, SW1, which CPPIB sold to Suntec for £430.6m, the freehold interest in 158-159 New Bond Street, which SEB sold to the building’s sole occupier, Chanel, for £310m, and White City Place, W12, which Mitsui Fudosan / Stanhope sold to Cadillac Fairview for £235m.
Additional transactions to take place included three freeholds with vacant possession in Mayfair / St James’s, including Queen’s House, 64 St James’s Street, which Savills has sold for in excess of the £35m / £2,572 per sq ft guide price, and 32 St George Street, which Savills acquired on behalf of an owner-occupier for £7.43m / £1,948 per sq ft.
October saw 21 properties launched for sale, amounting to a combined £485m; this stands in stark contrast to the relatively few properties which were launched in October 2019 (2) and October 2018 (6), and provides clear evidence of vendors’ renewed confidence in the prospect of gaining market traction when selling, relative to the previous six months.
In a further indicator of market momentum, a staggering £2.01bn worth of stock moved from available to under offer status last month, and we are tracking a number of other assets which are understood to be close to following suit.
These include The Clarges Estate, W1, which British Land reportedly agreed to sell to Deka for close to the £180m / 3.45% guide price; Corinthian House, W1, which Arcadia Group has placed under offer at a price understood to be around £70m; and 19a Cavendish Square, W1, which is let to the NHS for a further 23.5 years. In an illustration of the premium purchasers are currently placing on certainty of income, pricing for the latter is understood to reflect a net initial yield below 3%.
Notwithstanding the positive momentum noted above, there clearly remain economic headwinds and, on a property level, resultant challenges to transaction structuring; these have moved from the more practical constraints that we experienced during Lockdown 1.0 relating to physical access, to more transaction-level challenges surrounding the treatment of outstanding rental payments and the extent to which (and how) vendors might stand behind pre-agreed payment plans.
Moving forward, in the face of fresh restrictions, we will closely observe the progress of several landmark transactions, including 1 St James’s Square, where terms are close to being agreed for in excess of £235m / £2,216 per sq ft; Central Saint Giles, WC2, which Google is reportedly considering acquiring for in excess of £700m; and 21 St James’s Square, which has been launched at £182m, reflecting a net initial yield of 3.76% based on the average passing rent of £118 per sq ft that is secured for over 10 years.
On the basis of evidence seen this month, and general market sentiment, Savills prime West End yield has compressed to 3.50% albeit we would note an increasing delta between yields for prime and secondary assets, both in terms of quality of location and security of covenant. The MSCI net initial and equivalent yields stand at 3.86% and 4.86% respectively.