Flurry of activity ahead of anticipated seasonal lull
Investment volumes over the course of the month stood at £673m, spread across twelve transactions, crowning May the busiest month so far this year in terms of number of deals and accounting for 32% of year-to-date trades. May’s activity brings the cumulative annual turnover to £3.46bn, which marks a 62% and 39% uplift on the five-year and ten-year averages, respectively.
The largest transaction was Landsec’s freehold disposal of 32–50 Strand, WC2, which exchanged to Sinar Mas Land for a reported £195m, reflecting a net initial yield of 4.20% and a capital value £1,383 psf. The property totals 141,000 sq ft, comprising 101,000 sq ft of offices single-let to Bain & Company until 2032. The remainder comprises multi-let retail accommodation, which generates 30% of the asset’s total income.
Other key transactions include O&H Properties’ freehold disposal of 160–162 New Bond Street, W1 to LVMH, Lothbury’s freehold sale of 12 Soho Square to a joint venture between ARAX Properties and the Cambridge University Endowment Fund (£23.5m & £1,536 psf) and Angelo Gordon & Hondo’s off market long leasehold disposal of 12–13 Wells Mews, W1 to DWS (c. £43.7m, 4.10% & £1,910 psf). The latter, a 124-year leasehold interest with head rent gearing of 5%, was comprehensively refurbished in 2021 and is let to two office tenants with a WAULTC of approximately 7.5 years. The price achieved highlights the enduring appeal of buildings with secure income profiles and strong fundamentals, driven in part by the ever-growing ESG requirements of institutional investors.
Against a backdrop of rising finance costs and construction costs, to date, we have observed robust pricing across the market, illustrating the defensive nature of West End commercial property
Emma Mason, Analyst, Commercial Research
Savills advised the vendor, LabTech Investments, on a significant trade in May, being the off market disposal of 7-11 Herbrand Street, WC1. The Grade II listed Class E building is single-let to fintech company, Thought Machine, until 2026 at a net passing rent of £58.50 psf. Upon lease expiry, the asset provides a repositioning opportunity to deliver a laboratory-enabled building, to supply the rapidly growing Life Sciences sector concentrated around London’s ‘Knowledge Quarter’. The freehold interest traded to Life Science REIT for £85m, which reflects 4.78% on the property income & £1,238 psf.
Following the multitude of bids processes held in April, a number of deals were subsequently agreed in May, namely Pembroke’s 49 Park Lane (Q. £82.5m, 3.10% & £2,960 psf), Ballymore’s EG:HQ (Q. £80m & £366 psf) and M&G’s 89 Ecclestone Square (Q. £57.5m & £837 psf). In each instance, an open market bids process was held which instigated competitive bidding, and we understand that all three assets, which vary in nature from core income to development land, have been placed under offer. Against a backdrop of rising finance costs and construction costs, to date, we have observed robust pricing across the market, illustrating the defensive nature of West End commercial property.
Although many assets are attracting a strong response from investors, a number have languished, and we are monitoring some 60 available properties. When analysing on-market opportunities (totalling £1.59bn) there is a clear shortage in the supply of large lot sizes. Of the 60 assets being openly marketed, only 7% lie within the £100m+ category, 27% fall between £20m–£100m leaving the remaining 67% of buildings in the sub £20m bracket. Some are in the early stages of a sales process, however, a number, either through quality or price have stalled. With the pressing macroeconomic and geopolitical factors unlikely to disappear in the short term, it will be interesting to see how owners and buyers respond, and whether H2 activity matches the volume witnessed in H1.
Savills prime West End yield remains at 3.25%, whilst the Bank of England base rate has risen 25 bps to 1%, and the UK Bank of England SONIA rate has also increased to 0.94%.