City & City Fringe Investment Market
Overview
We have experienced another increase in transaction volumes in Q2 2025 with £1.114 Bn across 24 transactions. The continuing increase in transaction volumes reflects improving market sentiment but remains approximately c.35% down on the five year average.
The average deal size of circa £46.45M is slightly down on last quarter, partly due to the increased number of transactions, however sustaining the steady increase in larger lot sizes trading, with three £100M + lots having transacted this quarter taking the annual total to six, 50% more than in the whole of 2024 at the half way point. There are positive signs of confidence returning in the office market for larger lot sizes.
The largest transaction of the quarter was State Street’s forward purchase of 100 New Bridge Street, EC4 for £333M/ £1,709 per sq ft from Helical & Orion for their own occupation. This landmark transaction is significant in that it shows a major overseas bank relocating from a lease in Canary Wharf to owning their own office in the City core. It’s the largest transaction in the City since Q1 2023 and continues the trend of the prevalence of owner occupier purchases as prime Grade A rents continue to increase.
Following two interest rate cuts in 2025, so far, bringing rates to 4.25%, most analysts are anticipating a further two cuts during the second half of 2025 which should encourage more activity. However, the introduction of Donald Trump’s sweeping tariffs caused some uncertainties and a shift in global priorities stalling a bit of the positive momentum generated through Q1.
We anticipate further downward further pressure on prime yields going into the second half of the year but they currently remain relatively stable in the City around 5.25% - 5.5%.
We are seeing improved vendor sentiment to launch sales at rebased pricing and more end of business plan sales. The ‘wait until later in the year’ attitude seems to have been replaced with a realisation that yields, particularly for secondary assets, are not shifting quickly with more opportunistic purchasers looking to take advantage.
Allsop are currently tracking just over £1.43Bn of transactions which are under offer across 26 deals suggesting transaction volumes will continue their upward trajectory, however, deals are taking longer to transact and with the summer upon us it will be interesting to see how many reach transactional exchange prior to September. There are close to 15 properties which have had bids called for or will have received offers prior to the summer as owners try to keep momentum in marketing processes.
Office investors are driven by location more than ever with the City Core (Bank, Moorgate and Liverpool Street) being the focal point. Then the profile of the asset becomes more significant; core assets need to have strong ESG credentials, be fully let and income producing and require minimal if any cap-ex going forward. If it is value-add there needs to be a defined block date for repositioning. Core plus assets that fall in-between run the risk of being priced into value-add.
Who is Buying?
The nationality of the purchaser pool was evenly spread in terms of volume again, with investment from America taking pole position in terms of volume (£396.5M) but skewed by State Street’s acquisition. Asian/ Australian Investment was second at £312M, again generated by only two large transactions. UK Investors accounted for two thirds of the transaction volume by number (16) with a total of £298.9M; the majority of these were change of use-led acquisitions, notably hotels and serviced apartments.
Two themes from the previous quarter remain even more prevalent. The dominance of the owner occupier and alternative investment; those looking to convert offices into aparthotels or residential (co-living, via Permitted Development or private sales).
The UK Funds are also making a return to the City with M&G emerging as the surprise purchaser of a prime value-add repositioning opportunity at Equitable House, 47 King William Street, EC4. This corner freehold office building owned by DWS was multi-let to five tenants with potential for vacant possession in December 2026. After a competitive bidding process M&G were revealed as the buyer at £35.15M/ £782 per sq ft and a yield of c.8% on the topped-up income. The building has excellent ‘bones’ and some of the tenants wish to re-gear, so this could become more of a core plus business plan.
The living and hotel sectors remain very active accounting for 50% of transactions this quarter. There were five transactions £25M and above, including two acquired by renowned budget hotel operators. Travelodge, purchased the new 155 year long leasehold interest in 6 Broad Street Place & 15-17 Eldon Street, EC2 from the City of London, an iconic building located opposite the Elizabeth line entrance to Liverpool Street station. Travelodge were able to outbid office developers in one of the strongest micro-locations in the City with rents of £100 per sq ft plus being achieved opposite in Broadgate, showing the desire for hotel operators to invest in these core locations backed by a more supportive local authority from a planning perspective.
The two largest deals of the quarter, 100 New Bridge Street, EC4 and Capital House, 85 King William Street, EC4 were acquired by owner occupiers; State Street Bank (full occupation) and Daiburu (partial occupation). Both prices paid reflected investment value with Capital House providing interesting evidence for a multi-let freehold adjacent to Bank station which has been refurbished by Barings on a rolling basis since their purchase in 2020. The building was acquired with one floor vacant which Daiburu intend to occupy, for a price of £169M reflecting £1,391 per sq ft and a yield of 4.96%. The building is multi-let off average rents of £70.29 per sq ft and shows a WAULT to expiry of 7.6 years and break of 5.8 years. The yield demonstrates how owner occupiers are prepared to pay a premium for the best assets.
Who is selling?
The pool of vendors is as varied as ever with a mix of nationalities, private and institutional capital. Four of the 24 transactions were UK fund-led including Senator House (£63.5M) however two of the larger sales were from German Institutional capital, notably Union Investments and DWS.
The sales of both 100 New Bridge Street and Capital House by IRR-driven vendors, Orion Capital and Barings. These sales show there is a market to exit ‘best in class’ assets at premium pricing for sellers who wish to explore it. Both buildings were perfect for their respective purchasers’ business plans and arguably investment value was realised. We expect that these sales will drive more value-add exit strategies to explore a sale to the owner occupier market or some of the increasingly active Asian (mainly Japanese) investors who are keen to invest in the London markets while pricing remains at a discount to the long term average.
With reports that the City of London is cooling their relaxation of office to hotel planning applications, we can see this exit route becoming more challenging for vendors as the viability of the conversion gets increasingly scrutinised. This quarter La Salle & Al Gurg capitalises on the relaxation of planning policy disposing of c.60,000 sq ft of office space just off Lombard Street at 29 St Clements Lane, EC4. Whilst traditionally a core office location, the building offers poor prominence and natural light, lending itself well to a hotel conversion. Tristan Capital Partners acquired this as well as a smaller hotel opportunity at Northumberland House, High Holborn, WC1 from Swiss Life AM for conversion.
Headline Deals
The largest non-owner occupier deal of the quarter was Aware Super and Delancey’s acquisition of Finsbury Circus House, EC2. Redeveloped by Union Investments in 2012, the building is multi-let to four tenants off average rents of £61.34 per sq ft showing a WAULT to expiry of 6.1 years and breaks of 4.8 years. Delancey and Aware Super, one of Australia’s most active pension funds, acquired the building for £143M reflecting £1,098 per sq ft and a yield of 5.48%. This historically strong pricing for a building that was redeveloped in 2012 reinforces the attraction of core locations, particularly those between the Elizabeth line entrances of Moorgate and Liverpool Street and overlooking Finsbury Circus.
Long leasehold transactions are increasing in prevalence as investors widen their investment criteria as market sentiment improves. This quarter saw four long leaseholds trade including Senator House, 85 Queen Victoria Street, EC4 by Addington Capital/SVP from Legal and General for £63.5M reflecting £421 per sq ft and c.10% yield. The building was originally launched for sale in 2021 for £157.3M. Allsop advised on two long leasehold transactions; the acquisition of 41-42 Trinity Square, EC3, an attractive long leasehold property near the Tower of London for £7.85M/ 9.21% (topped up) / £405 per sq ft on behalf of Mazabi and the sale of 10 Throgmorton Avenue, EC2 on behalf of REIM. This property, a recently regeared long leasehold interest (148 years at 10% gearing) was multi-let to six occupiers off passing rents of £55.52 per sq ft with a WAULT of 3.15 years to expiry and 1.27 years to breaks. LM Stern purchased the long leasehold interest for £16.375M reflecting 7.16% yield and £654 per sq ft.
Direction of Travel
With the market quieting down for summer we are anticipating purchasers will be focusing on the transactions in hand. There is a reported total of £1.43BN under offer and with marketing processes being drawn to a close ahead of the summer we expect Q3 to be quite telling in terms of which buildings transact successfully.
There is improving confidence in disposing of larger lot sizes, whether this be sales of core end of business plan stabilised income, such as Capital House, or larger value-add product where there is a clear drive from the private equity houses to invest in buildings which can be transformed into best-in-class office space where there is now more evidence of exit liquidity.
The continued recovery in the office market remains very much focused on freehold core well-let assets with no capital expenditure required in very strong locations and conversely value-add projects presenting the ability to create ‘best in class’ accommodation, in the best locations. However, four geared long leaseholds have transacted this quarter which is more in a quarter since Q3 2023 and is certainly reflective of improving sentiment with the widening of investors criteria.
