UK institutions drive sell-side activity
November witnessed seven deals totalling £128.5m, reflecting an uptick in activity (by number) on both October and September. However, the cumulative 2022 figures, which total £5.25bn of volume and 92 transactions, reflect a 9% fall and 29% fall on the ten-year averages, respectively. Despite a typical H2 lull, year-to-date volumes are up 13% on the five-year average, and indeed 35% up on the same period in 2019.
The average deal size so far this year stands at £57m, and no single trade has exceeded this lot size since September. This illustrates buyer caution amidst the ongoing economic headwinds; however, November’s activity presented some early signs of a re-stabilising market. The largest transaction was, Globe House, 89 Eccleston Square, SW1. M&G’s Life Fund originally marketed the freehold interest in February for £57.5m and £837 psf and subsequently agreed a deal at this level. The buyer successfully renegotiated the price before an unsuccessful second attempt. The building, which comprises c.69,000 sq ft and provides short-term UK Government income with repositioning potential thereafter (subject to planning), was eventually acquired by Criterion on a three-day timetable. Pricing at £40m and £582 psf.
UK institutions have been the most common vendor type this year, accounting for 19 transactions (21%). The most recent was Royal London’s off-market disposal of the freehold interest in 117–123 Great Portland, W1 to Concord London (£19.15m, 2.81% & £1,303 psf). The c.15,000 sq ft office and retail building is single let to HSBC for a further nine years at a passing rent reflecting £39 psf (subject to an outstanding 2021 rent review).
In a continuation of the theme, two notable abrdn sales were placed under offer during the month. The largest, 6 Duke Street, SW1, marks the most notable core deal agreed since the successful sale of 1–2 Stanhope Gate, W1, in September. The c.35,000 sq ft office and retail building is multi-let to ten tenants with one vacant floor, providing a WAULT of c.3.5 years to breaks and c.7 years to expiries. A deal was originally agreed with a private investor at c.£70m, 3.79% and £2,023 psf in September. Following abortive negotiations, the vendor remarketed the asset at a revised price level, and following two rounds of competitive bidding, which saw over five parties formally offer, a deal was agreed with a private investor at a level understood to be in the region of c.£63m and 4.21%. This price reflects a capital value of c.£1,850 psf; the last time we witnessed a sub-£2,000 psf freehold St James’s transaction was over five years ago (excluding Pall Mall transactions).
Last year saw a year end flurry, with over £1.5bn trading in December alone. Based on the current market environment, we anticipate the final month of this year to be subdued in comparison
Victoria Bajela, Associate Director, Commercial Research
Last month we reported that seven bids processes were set for November. Besides the aforementioned 6 Duke Street, as we enter December, four of the assets in question have been placed under offer, including M&G’s Byron House, 7–9 St James’s Street, SW1, abrdn’s Berkshire House, 168–173 High Holborn, WC1, and a UK charity’s 7 Ridgmount Street, WC1. Each process generated competitive bidding and, if they successfully trade, will provide useful evidence as we enter 2023.
Last year saw a year end flurry, with over £1.5bn trading in December alone. Based on the current market environment, we anticipate the final month of this year to be subdued in comparison, we will closely monitor the status of the 21 deals under offer (totalling £1.44bn), 40% of this potential volume derives from only three assets, being the Ugly Brown Building, NW1, 300 Oxford Street, W1 and 19–21 Old Bond Street, W1.
Savills prime West End yield remains at 3.75%, the Bank of England base rate remains at 3.00% and the SONIA five-year swap rate has decreased to 3.77% in the second week of December; compared to 3.85% at the same time last month.