An uptick in appetite for larger lot size deals
March saw a healthy volume of transaction activity, with £383.1m of turnover across eight deals. The month’s investment activity brings the Q1 2025 total up to £858.1m across 15 deals, reflecting an average lot size of £57.2m and a notable 176% increase compared with Q1 2024, albeit from very low levels of investment turnover at just £311m. The uptick in activity within the larger lot size range is indicative of a slow but steady recovery in investors’ appetite for larger lot sizes. Although this year’s turnover volume is still 48% down when compared with the five-year average, the return of larger deals is an encouraging sign for the City market, which has already seen three deals in excess of £100m, compared with only four transactions in that lot size range throughout the duration of 2024. At the end of March, Savills is currently tracking a further £1.37bn under offer across 26 deals and c.£1.41bn of available stock.
In March, Savills, in an off-market transaction on behalf of Lendlease, sold a 20% interest in the long leasehold interest (243 years remaining at 5% gearing) in 21 Moorfields, EC2, to a joint venture between Japanese investors Yasuda and Sotetsu. Located directly above the Moorgate Elizabeth line entrance, the property was developed by Landsec in 2022 to comprise a brand new, best-in-class office development comprising 560,605 sq ft and benefitting from ESG credentials, including a BREEAM Outstanding rating. The property is single-let to Deutsche Bank, with 22 years remaining at a net rent of approximately £38.1m per annum, reflecting a gross rental value of £71.53 per sq ft overall.
In the largest deal of the month, the freehold interest in Centrium, 61 Aldwych, WC2, was sold by Chinese investor, COLI, for £170m, reflecting a capital value of £944 per sq ft. Located on the north side of Aldwych, the property occupies a core Central London location between the City and West End and is located within five minutes' walking distance of Holborn and Temple stations. The property is held freehold and comprises approximately 180,000 sq ft of office and retail accommodation, which is majority vacant with the exception of some short-term lettings on the top two floors. The building was acquired by the London School of Economics for its own occupation and reflects a recurring trend of office occupiers opting to purchase their own building at a time when Grade A Central London rents are rising and capital values are at a discount to historical pricing.
In a major value-add deal, Malaysian developer IJM Group acquired the long leasehold interest (143 years unexpired term at 10% gearing) in 1–5 London Wall Buildings, EC2, from Angelo Gordon for a sum of c.£72.5m, reflecting a capital value of £310 per sq ft. Occupying a prominent position on Finsbury Circus, close to the Elizabeth line at Liverpool Street station, the property comprises a highly attractive Grade II listed building totalling 234,074 sq ft of office accommodation arranged over basement, lower ground, ground, and eight upper floors. Simmons & Simmons committed to occupy approximately 150,000 sq ft, with options to take this to approximately 190,000 sq ft.
In the wider macroeconomic context, March saw the Bank of England’s Monetary Policy Committee (MPC) vote to maintain the base rate at 4.50%. This decision followed February’s MPC lowering the rate by 25 bps from 4.75% to 4.50%, reflecting a third rate cut since August 2024. The next MPC will be held on Thursday 8 May.
Meanwhile, there are signs of vendor hesitance beginning to subside as the gradual inflow of new stock continued, with £467m of available product being launched to the market in March across 13 deals, which followed on from £395m of new sales arriving during February. Considering the increased transaction volumes seen during Q1 2025 and a further £1.37bn already under offer, there appears to be growing buyer confidence, most notably in the larger lot size range, and with yet more stock being available and further interest rate cuts being anticipated, there are signs to suggest that momentum is gradually beginning to build in the City investment market.
Savills’ City prime yield is 5.25%, while the West End prime yield is 3.75%.