West End Investment Market
‘Bond Street retail bolsters West End volumes'
Overview
The West End had another “average” quarter based on recent years, recording £935M of transactions during Q2 24 either exchanged or exchanged and completed, in 28 deals with an average lot size of £33M. – the 5 year average volume for Q2 (including Q2 2020) is £920M with an average deal size of £46M.
However, the 10-year average for Q2 is £1.5Bn, and the average lot size is just under £60M. The effect of the decline in larger transactions on both the total volume and average deal size is clear to see, with deal size nearly halving in the last couple of years compared to the 10-year average.
Allsop have been involved in 6 of the 28 transactions this quarter, including advising on the purchase of a prime Berkeley Street freehold office, and the sale of 40/41 Pall Mall. In the case of Pall Mall, we undertook a traditional investment marketing campaign with an auction backstop. From launching the asset at the start of April, contracts were exchanged for £10.8M through competitive bidding in our commercial auction on Tuesday, 11 June – a marketing period from launch to exchange of around 10 weeks.
Interest rates remain at 5.25%, with prime West End yields remaining consistent at 4.00% over the last three quarters. However, there is some evidence of deals transacting at closer to 3%, as evidenced by Richemont’s purchase of 178 New Bond Street, W1 from a Private for £82M, reflecting 2.20%.
40/41 Pall Mall
Who is buying?
Once again, Private Investors have been the most active in the market accounting for 11 of the deals in the quarter, alongside Blackstone and a number of deals being chased by US private equity, such as Ares, Greycoat/Polis, and Oval/Elliot.
Who is selling?
There remains a number of UK REITs, UK Pension Funds, and Investment Managers who are driving sales in the West End.
Headline Deals
Apparent is the market volumes being supported by non-office-led transactions. Bond Street accounted for 43% of the quarter's total: Blackstone's £227M purchase of 130-134 New Bond Street, GPE's swap with City Corporation of Alfred Place with 95-6 New Bond Street, Weybourne/Dyson's purchase of 126-7 New Bond Street for £71M, and Richemont's purchase of 178 New Bond Street for £82M.
The only other purchases above £50M were AXA’s sale of The Assembly, Hammersmith for a reported £52M and conglomerate Letter One’s purchase of the freehold office at 18-20 Grafton Street from the Von Fink family for £100M, over £3,500 per sq ft – believed to be for owner occupation.
Direction of Travel
Pure office investment transactional evidence has been limited during the quarter. One of the few examples of a core office investment was the sale of Charlotte House, Windmill Street—a freehold office single let to Databricks for just under 5 years at £83 per sq ft. Arax Properties purchased it for a reported 6.15% NIY, £1,300 per sq ft.
Several larger office investments are currently in play, which should provide evidence in Q3. At the time of writing, Chinese Estates’ freehold at 14 St George Street, W1 has been placed under offer following a competitive bidding process – the target had been £135M, £2,600 per sq ft and 3.8% net initial yield – assuming passing rents generally around the £100 per sq ft mark and with one vacant floor being topped up to c £130 per sq ft. Times Place, Pall Mall (quoting £136M, 4.45%) has had a second round of best bids, and the market is closely watching the progress of 30 Golden Square, where Aviva have completed a redevelopment and have launched the sale at £74M, 4.25% and £2,400 per sq ft.
Charlotte House, Windmill Street