A positive start to the year following a quiet Q4
Following a quiet Q4, the year started on a positive note, with January registering eight transactions totalling £572.2m, representing an 80% increase on January 2022 and a 55% increase on Q4 2022 as a whole. With £1.67bn currently under offer and a handful of these deals being high-profile assets, there are initial signs of a quiet optimism returning to the market. At present, Savills is tracking 16 deals currently under offer, with £3.3bn available in the market across 82 assets.
In the largest deal of the month, Savills advised Chinachem Group on the acquisition of the long leasehold interest in 1 New Street Square, EC4, for £349.5m, 4.71% NIY and a capital value of £1,264 per sq ft. Completed in 2016, this best-in-class building is located within the New Street Square estate and 400 metres from the Elizabeth Line at Farringdon station. Held long leasehold for a further 147 years at a head rent of 7% of rents received, the building comprises 276,502 sq ft of office, retail and ancillary accommodation let in its entirety to Deloitte until October 2036. The gross passing rent is £18.11m per annum, reflecting £65.51 per sq ft overall, and the occupational lease is subject to annual uplifts of 2.35%.
In another notable deal in January, GIC and Oaktree acquired the freehold interest in 17 Columbus Courtyard, E14, from Macquarie, Sun Hung Kai & Co. and DPK Quay Limited for c.£100m, reflecting a capital value of £531 per sq ft on the existing area. Situated on the North Dock at Canary Wharf, the existing building comprises approximately 190,000 sq ft of net internal office and ancillary accommodation arranged over ten storeys. Sold with full vacant possession providing the opportunity for the purchaser to reposition the property as a lab-enabled scheme or office-led refurbishment.
In the month, Morgan Capital acquired the freehold interest in 19 Charterhouse Street, EC1, from Derwent London in an off-market transaction for £54m, 4.50% NIY and a capital value of £855 per sq ft. Located on the corner of Charterhouse Street and Farringdon Road, the property is just 50 metres from Farringdon station and comprises 63,170 sq ft of office accommodation arranged over lower ground and five upper floors. The building is fully let to the London College of Accountancy for a further 2.5 years, a total passing rent of £2.6m, reflecting £41.16 per sq ft overall.
Improving investor sentiment coupled with more market data points is helping narrow the gap between vendors' and buyers' pricing expectations, but there is still much for investors to be cautious about
Will Wilson, Analyst, Commercial Research
In another notable transaction in January, which offers a useful data point for market repricing, CBRE GI disposed of the freehold interest in Union House, 182–194 Union Street, SE1, for a price believed to be in the region of £31m, 5.86% NIY and a capital value of £913 per sq ft. Having originally marketed the asset in July 2022 for £39m, 4.65% NIY and a capital value of £1,149 per sq ft, this reflects a 26% discount to the quoting price. Located in a prominent corner position close to Southwark station, the building comprises 33,957 sq ft of refurbished warehouse-style office accommodation arranged over lower ground, ground, and six upper floors. The property is multi-let to eight tenants, including REN Ltd, Seaco Global Ltd and Auth0 Limited, at a passing rent of £1,938,341 per annum, reflecting £58.22 per sq ft overall.
Improving investor sentiment coupled with more market data points is helping narrow the gap between vendors' and buyers' pricing expectations, but there is still much for investors to be cautious about, particularly as we begin to see the impact of Q4 valuations, upcoming debt events and the ever-evolving market repricing.
Savills City prime yield stands at 4.50%, up from 4.25% in December 2022 and compares to the West End prime yield of 4.00%. The MSCI City average equivalent yield is currently 6.34%, while the net initial yield is 4.28%.