Market in Minutes: City Investment Watch

Turnover volumes remain low as the City awaits its first £100m+ deal of the year

April saw another quiet month, with £166.8m transacting across six deals, reflecting an average lot size of £27.8m. The year-to-date turnover at the end of April stood at £474.3m across 25 deals, which is 77% down on this time last year and 79% down on the five-year average and follows the lowest Q1 turnover since 1996. Notably, the number of deals is only 18% lower than the five-year average, highlighting the trend of market inactivity in the larger lot size range, with 2024 still yet to see a transaction in excess of £100m. As at the end of April, Savills is tracking £303.6m under offer across 13 deals in the City. 

In the largest deal of the month, Savills sold the freehold interest in Turnmill, 63 Clerkenwell Road, EC1, on behalf of Derwent London, for a sum of £77.35m, reflecting a net initial yield of 4.90% and a capital value of £1,097 per sq ft. Located on the south side of Clerkenwell Road at its junction with Turnmill Street approximately 300 metres north of Farringdon station, Turnmill was developed by Derwent in 2015 and comprises 70,482 sq ft of office, retail and ancillary accommodation. The current passing rent is £4,025,000 per annum, reflecting £57.11 per sq ft overall, with 93% of the income secured to Publicis Groupe on a long-term lease providing a WAULT of 10.4 years to expiries and 8.3 years to breaks. The lease is subject to a 2025 open market rent review. 

In the second largest deal of the month, Picton Property Income sold the freehold interest in Angel Gate, City Road, EC1. Located on the south side of City Road, approximately five minutes walk from Angel station, the property sits on a 1.7-acre site which currently comprises 64,765 sq ft of office accommodation across 19 self-contained buildings, plus an extensive basement car park. The properties are let off a highly reversionary rent of approximately £1.3m per annum, reflecting £20.95 per sq ft overall on short-term leases providing for phased vacant possession between 2025–2027, which allows the potential for residential conversion. 

The freehold interest was acquired by Q Square, a UK residential developer, for a sum of £29.6m, reflecting £457 per sq ft. Launched to the market in January this year, the swift timeline to exchange in April further demonstrates the current market liquidity for opportunities to convert offices to alternative uses. 

In another of the largest deals of the month, Greycoat acquired the freehold interest in 120 Aldersgate Street, EC1, from Legal & General for an undisclosed price, reflecting a net initial yield in excess of 10% and a capital value sub £500 per sq ft. The property comprises 45,089 sq ft of office and ancillary accommodation arranged over ground and eight upper floors, 75% of which have been recently refurbished and now benefit from EPC ratings of A or B. The property is multi-let to four tenants with two vacant floors, with a total passing rent (including top ups) of £2,536,859, reflecting £56.26 per sq ft overall, and a WAULT of approximately three years on the let accommodation. 

In terms of ongoing trends, we continue to see a lack of stock being openly marketed, with £40m launched to the open market across two deals in April. That said, the challenging economic climate and stifling theme of elevated interest rates saw some small signs of encouragement as the CPI inflation rate dropped to 3.2%, edging closer to the Bank of England’s 2.0% target, and although the latest Monetary Policy Committee meeting voted to maintain the base rate at 5.25%, it is interesting to note that two of the nine members voted to reduce the rate by 25 basis points for the first time since rate rises began in 2022. 

Savills City prime yield is 5.25%, while the West End prime yield is 4.00%. The MSCI City average equivalent yield stands at 8.15%, while the net initial yield is 4.18%.