Property dealmakers toasted a fruitful few weeks with a flurry of UK real estate transactions getting over the line before the new year.
The “Boris bounce” unleashed a wave of activity across the sector, with foreign investors returning to the UK in the wake of Boris Johnson securing his election win and putting a Conservative government in place for up to five years. But the question is, will the frenzy of activity make up for the dismal levels of commercial property investment throughout the rest of 2019? The short answer is: not very likely.
The first three quarters of last year saw around £6bn of London office deals, which was 51% down on the corresponding period in 2018, according to Radius Data Exchange. In total, 2018 saw £15.8bn change hands, so the bright spot of activity towards the end of the year is unlikely to be enough to break the £10bn mark, let alone the previous year’s total.
“Volumes have been relatively shallow across 2019 compared to recent years, with total annual investment spend on London offices set to miss the £10bn mark despite the forecast bounce-back in Q4,” said EG head of office and workplace research Graham Shone. “Crucial to gauging what to expect across 2020 will be assessing what happens on the supply-side early on in the year, as the subdued environment was as much down to lack of availability as it was investor circumspection.”
However, the uptick in Q4 will likely reassure those looking for more business certainty, with the perceived threat of a Jeremy Corbyn-led government removed and the UK scheduled to leave the European Union on 31 January.
The increased clarity encouraged a number of investors to jump back into the commercial property market. Standout deals included Alabama-based Medical Properties Trust agreeing to buy the real estate of 30 UK acute care hospital facilities for £1.5bn; Thai investor DTGO Corporation buying a portfolio of 17 IHG and Hilton-branded hotels for around £450m from private equity investor Marathon Asset Management’s UK arm; and Hong Kong’s K&K Property Holdings making its London debut with the purchase of office block Orion House, WC2, for £130m from WELPUT, a fund managed by GreenOak Real Estate Advisors.
Other major office deals between 13 and 31 December include German fund Deka exchanging contracts to buy the London headquarters of global communications company Publicis Group at 40 Chancery Lane, WC2, for £121.3m from Derwent London, as well as acquiring 51 Moorgate, EC3, for £62m from Swedish construction group Skanska; McKay Securities selling 30 Lombard Street, EC3, to Switzerland-based ReInvest Capital for £76.5m; and Aegila Capital Management and Greycoat buying the 137-year lease of a 121,255 sq ft prime office complex in the City of London for £73.5m.
But residential and retail deals remained comparatively lacklustre, with British Land only venturing out to pick up a 25% share of West One, a 92,000 sq ft mixed-use scheme on Oxford Street, W1, for from Norges Bank Investment Management. On the residential side, CC Land teamed up with Whiteleys owner Meyer Bergman to invest a total of £400m into redeveloping the Queensway shopping centre, W2, into 153 flats, plus a five-star hotel and mix of retail.
Going into 2020, investors are buoyed for the time being by reduced political risk, combined with stock shortages and a strengthening occupier market, according to Knight Frank.
Nick Braybrook, head of London capital markets at Knight Frank, said: “London’s perceived risk profile has improved tremendously through the second half of 2019, while geopolitical tensions in markets from Asia to the Middle East have eroded their relative attractiveness, boosting the appeal of London.”
Deals are already trickling in this month, with Northwood Investors buying Five Acre Square, EC3, from Madison International Realty and Nuveen. The asset at 133 Hounsditch was put up for sale with a £170m price tag.
After a disappointing 2019, the sector will be pinning its hopes on investors previously deterred by Brexit uncertainty and Corbyn fears continuing to return to the market. But whether the Boris bounce can be followed by a sustained “Brelief bounce” ultimately depends on whether Johnson honours his promise to “finish the job” within weeks.
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