Central London commercial property market sees robust start to 2013

By Bridging Loan Directory -

 

The Central London commercial property market saw a total of GBP2.75bn in deals in Q1 2013, according to Cushman & Wakefield.
Of this total value of transactions, 71 per cent was accounted for by acquisitions from overseas investors.

The total was down significantly on previous quarter reflecting the lack of available stock which has restrained investment volumes particularly in the West End.

In the City & Docklands, Q1, 2013 was off to a robust start with GBP1.77bn of investment volumes in 22 transactions (average lot size GBP80.5m). Overseas investors remain the predominant investor with GBP1.56bn of market volume (88 per cent) in nine transactions (average transaction size GBP175m).  The UK investor community remains active having undertaken 13 transactions, amounting to a total volume of almost GBP210m (c. 12 per cent) but the average transaction size remains small at GBP16m.  Investors from North America, Asia Pacific and the Middle East make up almost 75 per cent of the purchaser activity by GBP’s volume (26 per cent, 27 per cent and 22 per cent respectively).

However, total volumes are heavily reliant on a small number of transactions with just four transactions amounting to GBP1.35bn accounting for 75 per cent of overall volume.  In almost a perfect continental balance these investors are from North America, Europe (Germany), Asia Pacific and the Middle East.  Transactions include the purchase of Ropemaker for GBP472m (five per cent net initial yield); St Martins (KIA – Middle East) acquisition in Canary Wharf of 5 Canada Square for c. GBP383m (five per cent NIY); Ivanhoe Cambridge’s (Canada) purchase of Woolgate Exchange for c. GBP265m (5.95 per cent NIY) and Deka’s (Germany) Southbank acquisition of Palestra for GBP225m (5.1 per cent NIY).

From a UK perspective the interesting deal was that of Canary Wharf Group buying back some of the Canary Wharf estate with the purchase of 7 Westferry Circus for c. GBP47m/14 per cent from TIAA-CREF.

Bill Tyser, head of City investment at Cushman & Wakefield, said:

“Activity remains strong with over GBP2bn of transactions reportedly under offer.  Again much of this activity is limited to a small number of substantial transactions and whilst there are concerns over the availability of stock to meet this intensified demand, there are also signs of profit taking emerging from investors who acquire property at the beginning of this ‘crisis cycle’.”

Lack of stock restrains investment activity in West End whilst demand stays high Q1 2013 saw GBP965m of turnover in 33 transactions (average lot size GBP29.2m). This compares to GBP1.21bn in 40 transactions for the same period in 2012.

There have been a number of significant transactions this quarter with the purchase of 151 Buckingham Palace Road, SW1 by Lembaga Tabung Haji for GBP205m (6.58 per cent NIY); 17-18 Old Bond Street, W1 purchased by the tenant, Prada, for c. GBP90m (2.75 per cent NIY) and 1 Grafton Street, W1, bought by Pembroke Real Estate (4.58 per cent NIY).

Additionally, by the end of Q1 2013 over GBP400m of investment stock was understood to have exchanged awaiting completion and another GBP1.46bn of stock was under offer.

The flow of international money from all corners of the globe has continued, with overseas investors accounting for over 51 per cent of the purchaser volumes in the quarter. UK investors remain active also, with volumes representing 49 per cent of the purchaser volumes in Q1 2013.

Mike Tremayne, head of West End investment at Cushman & Wakefield, said: 

“Whilst the lack of available stock in the West End restrained investment volumes in the last quarter, the market continues to act as a target for overseas and domestic investors alike, all looking to benefit from the underlying positive occupational demand, strong liquidity and general ‘safe haven’ qualities the West End has to offer.”