Growing momentum culminates in record monthly turnover
December’s turnover of £1.16bn, which was spread across 12 transactions, represented the highest monthly volume of the year and equated to some 25% of the total annual figure (£4.70bn).
Whilst the annual total stands 38% below the previous five years’ average, it is only 9% down on 2019 and can largely be attributed to the near-standstill conditions we witnessed in H1. This is perhaps best illustrated by the extent of the rebound, post-lockdown; indeed Q4’s turnover of £2.87bn was the highest since 2014, and 38% above the five-year Q4 average.
The record monthly activity was fuelled by the completion of several flagship transactions which had been under offer during the autumn. The most significant of these was British Land’s disposal of a 75% stake in three buildings (66 and 45 Seymour Street, and 10 Portman Square, W1) to Allianz Real Estate, advised by Savills, for £410m.
The properties, which comprise 309,000 sq ft of mixed-use accommodation, are let to seven office tenants for a money-weighted unexpired term of seven years, and also include 22 residential units. The eventual transaction price reflects a blended net initial yield of 4.30% and a capital value of £1,557 psf.
In a clear illustration of the continued appeal of secure, long-dated income, other major transactions included Ponte Gadea’s acquisition of 21 St James’s Square, SW1, which is majority let to Cinven for 11 years at a rent of £119 psf (£187.5m / 3.65% / £3,055 psf); Sofidy’s acquisition of Penguin Random House’s headquarters on Vauxhall Bridge Road, which was being structured as a sale and leaseback for 10 years (£67m / 4.73% / £1,060 psf); and a Healthcare REIT’s acquisition of 19a Cavendish Square, W1, which is let to the NHS for 23.5 years, for £50m / 2.53% / £2,874 psf, some 39% ahead of quote.
December volumes were also boosted by a series of value-add transactions, namely K&K’s double acquisition of Corinthian House, W1 (£65m / 4.25% / £1,830 psf) and Endeavour House, WC2 (£115m / 4.81% / £1,246 psf), from Arcadia Group and Aberdeen Standard Investments respectively; Kajima’s acquisition of Orwell House, 16-18 Berners Street, W1, from British Land for £22.7m / 5.17% / £792 psf; and Fidelidade’s acquisition of a 92-year long leasehold in Smithson Plaza, SW1, which Savills sold on behalf of Tishman Speyer for £158m / 4.85% / £2,282 psf.
The latter is majority let to 11 office tenants and three retail tenants for a WAULT of 5.5 years, at an average office rent of £131 psf, and is subject to a Headlease rent review next year.
Across 2020 as a whole, Savills advised on one in every five transactions in the West End, which represents another strong year for the team and a leading market share of 25% by volume.
In terms of purchaser profile, European capital was the most prevalent (accounting for 30% of volume), followed by Asian and UK capital, which accounted for 28% and 22% of volume respectively. That being said, in terms of the number of transactions undertaken, UK purchasers remain the most dominant group, having been involved in 49% of deals – a considerably higher proportion than European and Asian investors, who accounted for 15% and 14% of transactions respectively.
The scale of uplift seen in Q4, coupled with news of a vaccine and certainty of a Brexit trade deal, bodes well for a more active 2021, notwithstanding shorter-term headwinds of Lockdown 3.0. Based on this, ongoing questions on rental direction and the most recent evidence, Savills prime West End yield remains at 3.50%. The MSCI average net initial and equivalent yields moved to 3.85% and 4.86%, respectively.