City & City Fringe Investment Market
Overview
2024 transaction volumes reached a total £2.268Bn which is the lowest annual volume in the City since 1990. The total volume is quite significantly down on 2023 (£3.75Bn) and c.65% below the 5 year average (c.£6Bn). However, Q4 experienced the highest quarterly volume of the year and double that of Q4 2022 volumes demonstrating signs of improved market sentiment coming into 2025.
Significant Q4 24 transactions making up the total of £790M include Labs’ sale of 90 High Holborn, WC1 to Greycoat & Polis (£180M) and Helical Plc’s sale of a 50% share in JJ Mack Building, EC1 to Ashby Capital (£139.2M) – these two transactions totalling nearly 50% of the total. Other notable sub £50M transactions include – Criterion’s acquisition of 1 Princes Street, EC2 from RBS (£35M), French Fund Iroko’s second acquisition of the year; 158-164 Bishopsgate, EC2 from British Land (£25.7M) and toy company Zuru’s purchase of 10-4 Pentonville Road, N1 from Derwent London (£26M) for their own occupation.
The average lot size in Q4 was c.£31M which when compared to the 2017 average of in excess of £90M shows how the liquidity for larger lot sizes has dramatically declined. We have still seen 82 transactions however, so the number of deals remains high, despite much smaller total volume. Allsop City team were responsible for five of these in Q4 most of which were in the liquid lot size range of £5M to £15M.
Who is Buying?
For the first time in a while the UK investors were outgunned by overseas buyers with American Investors accounting for c.40% of the total volume across five transactions, with Middle Eastern investors second, accounting for c.29% of the deal volume. Once again, Asia investment was generally low with only one transaction by LKK Foods who acquired the final piece of the island site around the Walkie Talkie building from Royal London Asset Management.
Owner occupier acquisitions are becoming more prevalent than ever, seeking to capitalise on historically low pricing. Premium pricing was realised for 16-18 Monument Street, EC3, a 22,951 sq ft freehold building which sold for £15,000,000, £654 per sq ft, £1,000,000 ahead of the original guide price, to an owner-occupier following a competitive bids process.
French retail funds remain active buyers of high yielding assets that are fully let. Iroko purchased their second London asset of 2024, the long leasehold interest in 158-164 Bishopsgate, EC2 from British Land for £25.7M, 7.67%, £519 per sq ft. The 49,484 sq ft mixed-use building is primarily let to Tesco, with offices above multi-let to six tenants off a low overall passing rent of c. £42.68 per sq ft.
Who is Selling?
Most active sales are being driven by finance related events or wider strategic decisions to sell i.e. closed-ended Fund or sector diversion, rather than business plan completion sales or profit taking. One of the larger Q4 sales was The Relay Building, 1 Commercial Street, E1 which was marketed for sale under instruction of the senior lender. The 102,905 sq ft virtual freehold office building (with sold off residential above) was purchased by the borrower for over 50% less than the original purchase price of £91M in 2018. The price paid in December was £43M reflecting 12% yield (topped up) and £418 per sq ft but with a considerably shorter WAULT.
Buildings with diminishing income streams or in need of heavy capital expenditure are attracting buyers from the C1/aparthotel sector which is very well-capitalised. These purchasers are preserving values for vacant office buildings within the City of London provided they can be configured for a bed use. In December 2024 AEW’s EVI Fund sold St Clements House, EC4 ahead of the guide price for £22,225,000, £513 per sq ft to JMK who will convert the building into a 132 room aparthotel. Allsop were also responsible for the sale of ABRDN’s Gate House, 1 Farringdon Street, EC1 which was acquired by a private UK investor for £11.3M reflecting £518 per sq ft to convert to C1 use.
Headline Deals
The largest deal of the quarter was Greycoat & Polis acquisition of 90 High Holborn, WC1 from Labs for £180M, 6.6% net initial yield and £991 per sq ft. Held freehold in a strong Midtown location, the building is multi-let to four tenants, the majority tenant being Labs Worldwide off average rents of £64.32 per sq ft and a WAULT of c.8 years term certain. The 6.6% acquisition yield is a c.200bps discount to the pricing originally quoted when the building was first marketed for sale in 2022.
The sale of a half share in Helical’s JJ Mack Building, EC1 to Ashby Capital was the second largest deal of the quarter and the fifth and final transaction of the year over £100M. This prime new development next to Farringdon West Elizabeth line hub is multi-let off an average rent of £83.43 per sq ft with a WAULT to break of 10.9 years. Held long leasehold, the yield achieved was 5.75% on the contracted rent and at £139.2M, the capital value was just in excess of £1,351 per sq ft. Despite the long leasehold tenure this pricing is reflective of a ‘best in class’ building trading in the current market.
Direction of Travel
Following interest rate cuts in August and November, but either side of what was deemed a largely inflationary Autumn Budget, sentiment seems to be slowly improving as the number of active buyers in the City continues to increase. In 2025 we anticipate more £100M+ transactions, with more impetus from buyers to conclude deals. However, any significant increase in values is unlikely until the velocity of interest rate cuts increases.
There is increasing pressure on owners who have been able to extend existing loans in the short term. We therefore expect more sales to be driven by finance related events as banks lose patience, but also from owners of ‘best in class’ well let assets, especially those assets which have capitalised on a strong leasing market with major pre-let activity at record rents. Evidence from sales such as JJ Mack demonstrate robust pricing for ‘best in class’ assets with exceptional ESG credentials.
The £870M+ currently under offer/ exchanging in January (including some large transactions such as 1 Portsoken Street and Borough Yards) suggests there will be an increase in £100M+ transactional activity in 2025. With a steadily increasing buyer pool, transaction volumes should continue their recovery through 2025, hopefully supported by further interest rate cuts.