C&W: Robust first quarter for London commercial property investment (UK)

The attractiveness of Central London commercial property as a safe haven for international investors was evidenced again in the first quarter of 2013, with a total of £2.75 billion (approx. € 3.22 billion) deals transacted, according to Cushman & Wakefield. Of this total value of transactions, 71% 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 £1.77 billion of investment volumes in 22 transactions (average lot size £80.5 million). Overseas investors remain the predominant investor with £1.56 billion of market volume (88%) in 9 transactions (average transaction size £175 million). The UK investor community remains active having undertaken 13 transactions, amounting to a total volume of almost £210 million (c. 12%) but the average transaction size remains small at £16 million. Investors from North America, Asia Pacific and the Middle East make up almost 75% of the purchaser activity by £’s volume (26%, 27% and 22% respectively).

However, total volumes are heavily reliant on a small number of transactions with just four transactions amounting to £1.35 billion accounting for 75% 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 (see below) for £472 million (5% Net Initial Yield); St Martins (KIA – Middle East) acquisition in Canary Wharf of 5 Canada Square for c. £383 million (5% NIY); Ivanhoe Cambridge’s (Canada) purchase of Woolgate Exchange for c. £265 million (5.95% NIY) and Deka’s (Germany) Southbank acquisition of Palestra for £225 million (5.1% 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. £47 million / 14% from TIAA-CREF.

Bill Tyser, head of City investment at Cushman & Wakefield said: “Activity remains strong with over £2 billion 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 £965 million of turnover in 33 transactions (average lot size £29.2 million). This compares to £1.21 billion 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 £205m (6.58% NIY); 17-18 Old Bond Street, W1 purchased by the tenant, Prada, for c. £90m (2.75% NIY) and 1 Grafton Street, W1, bought by Pembroke Real Estate (4.58% NIY).

Additionally, by the end of Q1 2013 over £400 million of investment stock was understood to have exchanged awaiting completion and another £1.46 billion 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% of the purchaser volumes in the quarter. UK investors remain active also, with volumes representing 49% 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.”

Source: Cushman & Wakefield

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