September sees over £1bn transact in five deals
Transaction volumes for September 2022 were in line with the highest September on record, with five deals totalling £1.037bn transacted (2021 saw £1.013bn). 93% of September’s volume was across two deals: 21 Moorfields, EC2 and Kaleidoscope, EC1. Savills is tracking a further £1.9bn of stock under offer across 23 deals, and a further £5.4bn across 90 deals available in the market.
In the largest deal of the month and the second largest deal of the year, on behalf of Landsec, Savills advised on the sale of the long leasehold interest in 21 Moorfields, EC2. The office development forms one of the most complex construction sites in London, positioned directly above Moorgate underground station, and the new Elizabeth Line interchange and Liverpool Street. Upon practical completion, the property is to provide approximately 560,600 sq ft NIA of office, retail, leisure and ancillary accommodation, with the building set to meet market-leading sustainability credentials. The accommodation was pre-let in its entirety to Deutsche Bank for 25 years.
On behalf of Hoi Hup, Savills sold the freehold interest in this core multi-let property to Habro for £45.1m, 4.51% NIY and a capital value of £1,029 per sq ft. Located by Mansion House underground station and close to Bloomberg’s headquarters, the property comprises 43,850 sq ft of office and retail accommodation and is fully let to nine tenants, providing a topped-up passing rent of £2.17m, reflecting £55.57 per sq ft overall. The building provides a WAULT of 4.0 years to breaks and 8.0 years to expiries.
Before the global financial crisis, the value of the pound vs the dollar was as high as $2.00 and before Brexit, it offered between $1.45 and $1.70
Will Wilson, Analyst, Commercial Research
The second largest deal of the month was the sale of Kaleidoscope, EC1. Situated directly above the Elizabeth line interchange at Farringdon station and forming the eastern entrance to the station, the property comprises 85,500 sq ft of best-in-class office accommodation and is let in its entirety to TikTok for 15 years with a break at year 10.
The gross passing rent is £7.25m reflecting £86.18 per sq ft overall and the property is held long leasehold with further 146 years unexpired at a head rent of 10%. The building sold to Chinachem for £158.50m, 4.26% NIY and a capital value of £1,789 per sq ft.
The Chancellor revealed his plans for growth in September’s mini-budget ahead of the Government’s medium-term fiscal plan which set out a new approach to the economy with a focus on supply-side reforms, public finances and cutting taxes to boost growth. Despite expecting to bolster the economy with ambitious plans for growth, the announcement increased volatility in the financial markets, resulting in a fall in the value of the pound and followed by the Bank of England’s bond-buying intervention. The value of the British pound fell below the US dollar for the first time since 1985 at $1.04. For context, before the global financial crisis, the value of the pound vs the dollar was as high as $2.00 and before Brexit, it offered between $1.45 and $1.70.
Having experienced some renewed confidence in the London market at the beginning of September, the increased volatility resulting from the mini-budget led to SONIA rising above 5.0% for the first time this year. Investors are showing signs of caution; however, those overseas investors (particularly USD-pegged currencies) that do not require third-party financing to close transactions are starting to see signs of real opportunity arising with the outward yield movement.
In the month, Savills moved the City Prime yield from 4.0% to 4.25% which is an outward movement of 50 bps from the historic low of 3.75% seen earlier this year. This compares to the West End prime yield of 3.50%. The MSCI City average equivalent yield currently stands at 5.39%, and the MSCI net initial yield is 3.56%.