With over £2 billion (2.3 billion) of transactions exchanging in the past three weeks the Central London commercial property market continues to show its resilience and attraction to overseas investors. Stephen Down managing partner of specialist central London investment consultancy Gresham Down Capital Partners said: "Five weeks ago the fear was that there was too much stock on the market but the appetite of buyers has been voracious.
"US opportunity fund Carlyle has just bought six London office buildings, comprising the White Tower portfolio, from receivers for over £670 million. Gresham Down itself has been advising a private Eastern European investor who has just acquired Mitsubishi Estate Company's Bow Bells House, a trophy City asset for £140m."
Down is also advising a group of investors selling River Court, the £300m European headquarters of Goldman Sachs in the City. "This is a good example of the type of trophy stock that appeals to the overseas market," says Down."It has been owned by the same group since it was developed in 2000 and is let to Goldman Sachs for another 15 years. It is a modern Grade A building secured to an international tenant on a long lease and the rent is low at only £36.00 per sq ft overall compared with recent lettings on similar space at over £50.00per sq ft. It offers the investor access to the growth in rents over the next three to four years".
Down says given the current scarcity of debt recent buyers have tended to be equity rich. But River Court "unlike other deals comes with a fixed interest debt until 2016 representing over 80% of the purchase."
Office rents in the City of London have risen by almost 12% over the past 3 months and by 24 % in the past six months. The downturn led to a collapse in construction starts in the City. This has resulted in tenants now finding themselves in bidding wars over the dwindling supply of Grade A space, which is driving up rents.
Down highlights recent Qatari acquisitions such as Harrods in Knightsbridge for over £1.5 billion and Park House in Oxford Street a prime commercial and residential development, for £500 million, as further evidence of the weight of money looking to invest in trophy London assets.
He says there is also increasing evidence that Malaysian, Korean and Chinese investors are running their slide rules over Central London property. "Chinese entrepreneur Joseph Lau has been reported at the preferred bidder on the £300 million Tower 42 but we know there are a number of other Far Eastern institutions and private investors that have targeted London because of the liquidity and transparency of the market but also because of the weakness of sterling."
Down believes the appetite for London will remain strong but he offers some advice to investors seeking to get into the market. "First, stick to the very best in class - that is where the rental growth will provide the performance. Second, work with advisors who have a strong reputation for performance. Unfortunately there are too many intermediaries with little or no experience messing investors around at the moment."
Source: MJ2 Limited