Market in Minutes: West End Investment Watch

Flurry of end-of-year bids to reveal true investor sentiment

October is a traditionally busy month for investment activity and, based on the average monthly performance over the last decade, typically witnesses over 13 trades. However, this October’s performance was significantly suppressed, recording only three deals totalling £57.5m. Cumulative annual transactional activity now totals £5.23bn across 85 deals, which is 18% above overall volume and 4% below transaction numbers on a five-year basis.

The rising cost of finance has been a continual theme over the last few months and has contributed to the divide created between vendor and buyer price aspirations. This, coupled with some investors’ fear of investing in what is perceived to be a falling market, has led to the muted investment activity we are currently witnessing.

A private investor disposed of their freehold interest in 55–56 Poland Street, W1 to a private overseas investor for approximately £11.3m, 5.50% and £1,208 per sq ft, reflecting a c.10% discount to the most recent revised quoting price of £12.5m and 25% lower than originally sought in July 2021. The building is multi-let to six tenants at an average topped-up office rent of £84 per sq ft.

In terms of the outlook for the remainder of 2022, turnover is expected to remain limited, albeit October saw five open bids processes, at combined quoting prices of over £300m. The outcomes of these provide some guidance on buyer sentiment and how far pricing has shifted already.

The most notable process was Berkshire House, 168–173 High Holborn, WC1, owned by RBS Pension Trustees and managed by abrdn. The long leasehold interest (115 years unexpired at £1,000 pa) was marketed in September for £55m, 5.00% and £981 per sq ft. The c.56,000 sq ft office and leisure building is multi-let with a potential for vacant possession in July 2024, providing a significant repositioning opportunity thereafter, subject to planning and freeholder consent. Following two rounds of competitive bidding, albeit at some 20% below the guide, we understand the building has been placed under offer.

In terms of the outlook for the remainder of 2022, turnover is expected to remain limited, albeit October saw five open bids processes, at combined quoting prices of over £300m

Victoria Bajela, Associate Director, Commercial Research

In a continuation of the theme, a further seven bids processes have been set for November, at a combined quoting price of c.£330m, including CBRE IM’s freehold interest in 1 Albemarle Street, W1 (Q. £70m, 3.66% and £2,523 per sq ft) and Westbrook’s freehold interest in 60 Charlotte Street & Scala House, W1 (Q. £140m, 3.66% and £2,032 per sq ft). The former, a c.28,000 sq ft office and retail building overlooking Piccadilly, is multi-let to 12 tenants at an average office rent of £87.95 per sq ft and a WAULT of 4.3 years to expiries.

Mayfair has been the most active submarket this year to date, witnessing 14 deals, and in light of the recent successful sales of 1–2 Stanhope Gate, W1 and 49 Park Lane, W1, it will be interesting to observe whether any legacy interest from these deals translates in the sale of 1 Albemarle Street.

In terms of available stock, we are tracking a substantial £3.58bn across 93 openly marketed assets, which is skewed heavily by 31% of this volume attributed to the largest four assets; the most notable of which being British Land’s virtual freehold interest in 10, 20 and 30 Brock Street, NW1. At the other end of the scale, half of the assets currently on the market have a quoting price below £20m, which provides a plethora of opportunities for cash-backed private investors. A growing proportion of buyable stock is derived from aborted sales processes, with at least five deals failing in October, with a combined quoting price over £275m.

Savills prime West End yield has increased 25 bps and stands at 3.75%, the Bank of England base rate has risen 75 bps to 3.00% and the SONIA five-year swap rate has also increased to 3.83% in the second week of November; albeit down from a high of 5.4% at the end of September.