The final quarter has registered the highest investment volumes in the City of London office market in each of the past two years.
And just two weeks on from the end of the traditional August lull there is already more than £3.3bn of large City of London offices either on the market or earmarked for sale later this year.
Add in a further £2.2bn of stock that is already under offer – including a couple of large sales in Stratford and the South Bank, plus whatever the rest of the year may bring – and the final quarter of 2015 has the potential to make this year even more “back ended” than has become usual.
This recent trend of bumper Q4s “in part relates to more companies having adopted the January-to-December financial year,” according to Knight Frank chief economist James Roberts.
“So there can be a rush to book that last deal before the books close at the end of December.”
And 2015 has had the added factor of a general election that deterred investors from marketing properties in the spring because of the uncertainty it caused, says Robert Buchele, a director in Savills City investment team.
So just what is coming to market in the next quarter, who is behind all the sales and is there the demand to swallow all of that stock?
EG is tracking around 15 major City offices that are currently available or soon will be from a variety of vendors.
| Buildings for sale | Quoting price (£m) | Vendor |
|---|---|---|
| Devonshire Square | 550 | Blackstone |
| Cannon Place | 500 | Private investor |
| Broadgate Quarter | 432 | Hines/HSBC |
| Thomas More Square | 300 | Land Securities |
| 55 Bishopsgate | 180 | CPPIB |
| One America Square | 150 | Blackstone |
| Holborn Gate | 150 | Land Securities |
| 100 New Bridge Street | 150 | IHG |
| First Avenue House | 145 | Topland |
| The Helicon | 140 | Deutsche Asset and Wealth Management |
| 5 Fleet Place | 140 | ADIA |
| 40 Gracechurch Street | 140 | Cornerstone |
| High Holborn Estate | 130 | Blackstone |
| Friary Court | 60 | IHG |
| 148 Old Street | 52.7 | GPE |
| Tudor Court | 46.5 | Private investor |
| Farmiloe Building | 35 | Farmiloe family |
| Total | 3,301 |
Private equity accounts for a significant proportion of the sales volume.
Blackstone, for example, has three significant sales totalling £830m being lined up.
UK REITs are sellers too, with Land Securities, GPE and Derwent all currently marketing opportunities in London.
And overseas pension funds are also selling – realising gains made on early-cycle investments – with Canada Pension Plan Investment Board and Korea’s Public Official’s Benefit Association both currently among the list of vendors.
In fact, an analysis of the length of time the current crop of vendors has owned their respective assets shows that hold periods are getting shorter.
| Buildings under offer | Quoting price (£m) | Vendor |
|---|---|---|
| 110 Bishopsgate | 750 | Heron International-led consortium |
| The FCA and TFL Buildings TIA Stratford | 550 | Lend Lease/LCR |
| The Blue Fin Building | 400 | Time Inc |
| Thames Court | 195 | CBREGI for POBA |
| Finsbury Tower | 100 | Hermes |
| The Rex Building | 70.5 | Aberdeen Asset Management |
| 90 Fetter Lane | 45 | WealthCap |
| 1 Alie Street | 45 | City of London Corporation |
| TOTAL | 2,156 |
The 17 significant City of London buildings for sale that do not involve either a recently completed development or the sale of a building with short leases for redevelopment, have been held for just over five years on average, compared to 7.5 years for the top deals in 2014.
So is there the demand for all of these assets?
“The numbers are potentially larger than previous years,” says Nick Braybrook, Knight Frank’s head of City investment.
“But in reality it will be spread over the next four months and some vendors were burnt last year trying to sell too much too close to Christmas. There is still plenty of demand.”
Nick Deacon, director of central London offices at TH Real Estate adds: “There is a great deal of speculation around the activity we will see between now and the end of the year. Both 2013 and 2014 were high turnover years for the market. Does 2015 feel any different? On
balance, we don’t think so.”
In fact, Deacon argues that a lot of the stock being marketed for sale “does not fit where the demand lies for London investments.
“[Demand] is still either for super-prime or value add-style opportunities. Sellers of anything in between those sweet spots will have to accept a thinner market and be more pragmatic on their pricing aspirations.
“Not everything in London can be worth a 4% cap rate.”
