Market in Minutes: City Investment Watch

A record September as the market prepares for a busy year-end

September saw twelve transactions totalling £1.013bn, the largest September ever recorded in the City market and the second-largest monthly turnover for the year (to date).

Transactional volumes for September 2021 were seven times more than those achieved in the same month last year when only two buildings traded (£144.7m), highlighting a clear change in investor appetite in 2021.

Total investment for the year now stands at £5.35bn across 60 deals, which is 117% ahead of the same point in 2020, when there had only been 43 transactions, totalling £2.45bn.

Q3 2021 investment totalled £2.34bn across 26 deals, significantly ahead of Q3 2020 when only £640m traded and 14% ahead of the five-year average for Q3 investment, which is £2.05bn.

As we enter the final quarter of the year, there is currently £2.15bn under offer across 18 deals, with a further 62 buildings being openly marketed, totalling £4.20bn. As predicted in our previous market reports, September did signal a change in the number of assets being brought to the market, however, availability continues to be dominated by larger properties (£100m+) with £3.35bn, 80% of total availability, accounted for within the top 10 deals (by lot size).

In their first acquisition in the City for over ten years, JP Morgan acquired 160 Old Street, London EC1 from The Great Ropemaker Partnership in an off-market transaction for £181.5m, which reflected a stabilised net initial yield of c.4.5% and a capital value of £1,082 per sq ft. The freehold building is located on a prominent location on the corner of Old Street and Bunhill Row, less than 200m from Old Street roundabout. The property was newly developed in 2018 and provides 166,300 sq ft of office and ancillary accommodation. 70% of the income is derived from global media corporation Turner Broadcasting.

In another notable transaction for the month, the Korean-US consortium of National Pension Service of Korea (NPS), Hines and Lipton Rogers Developments acquired 18 Blackfriars Road, SE1. The freehold two-acre site on London’s South Bank comprises a 1.2m sq ft mixed-use development. The site benefits from detailed planning consent for a Wilkinson Eyre-designed scheme that includes a 32-storey office building, a 53-storey residential tower, and a 324 key hotel. The consortium acquired the site for approximately £200m and is the first purchase in the UK for NPS and Hines’ new $1.5bn build-to-core venture.

A trend that has emerged across 2021 is the undoubted demand for value add/development opportunities within the City market. Investors continue to be attracted to these types of opportunities within the City, taking advantage of a continually pre-let development pipeline, but also identifying a shortage of ‘best-in-class’ office buildings within the market that meet modern occupiers required sustainability standards. Investors have identified an opportunity to upgrade ‘old stock’ to meet the new market-leading ESG standards.

50% of all transactions in September were for development/value add buildings and Savills most recent experience with transactions of this type have highlighted a significant depth in investors actively bidding on assets that fit this profile. In September, Savills sold 1 Golden Lane, London EC1, a 100,000 sq ft+ value add opportunity on behalf of a private Singaporean investor to Castleforge for £75m, following a competitive sales process.

September saw a return to the market for Asian investors with NPS’s acquisition of 18 Blackfriars Road, being one of four acquisitions from Asian buyers in the month, taking their total investment into the City to £1.15bn across seven transactions, 22% of total volume. European investors are now the leading buyer group in the City, acquiring over £1.47bn worth of buildings across 12 deals accounting for 29% of total volume.

Savills prime yield now stands at 3.75%, which compares to the West End prime yield of 3.25%. The MSCI City average equivalent yield currently stands at 5.45%, while the net initial yield is 3.02%.