City & City Fringe Investment Market
Overview
Total City volumes for Q1 2026 reached £742M across 24 transactions. This is down 63% on Q4 2025 (the highest volume quarter since Q3 2022) where the total volume reached £2.156Bn however it is significantly up on the subdued Q3 2025 where volumes peaked at only £430M but down on the £934M volumes of Q1 2025.
The reduction can be put partly down to such a significant number of transactions reaching contractual exchange in Q4 2025 which reduced available stock levels but possibly also part down to the geopolitical situation in the Middle East which would certainly have slowed progress on deals going under offer post February.
Having said that 14 of the 24 transactions reached contractual exchange or completion in March, post America and Israel’s attacks on Iran which does suggest investors remained confident enough to close. The medium to longer term impact of the frustration to the shipping lanes in the Strait of Hormuz is still yet to be realised in the debt markets but it has certainly brought back some inflationary pressures we experienced in 2023 and increased uncertainty.
- The average lot size for the quarter was c. £31M compared with c.£40M for the first three quarters of 2025 and £50.5M for Q4 2025. This is down to the lack of larger transactions. Only two over £100M concluded, Meadow Partners and LBS’s acquisition of 1 Wood Street, EC2 for £132M from KanAm and Global Relay’s acquisition of 45 Cannon Street, EC4 from Swiss outfit AOG Real Estate, a building which they majority occupy, for £112M.
1 Wood Street, EC2
45 Cannon Street, EC4
Buyers
Buyers’ nationalities were very mixed this quarter with domestic/ UK investors topping the table at 34% closely followed by America at 30%; Meadow Partners being responsible for the largest deal of the quarter. Volumes from the European mainland continue to be robust at c.15% with French fund Alderan accounting for two deals, albeit both sub £20M, as these SCPI funds continue to chase yield. The largest deal acquired by a UK Investor was The Sans, 20 St John’s Square, EC1 which was purchased by Abrdn for £45.925M, reflecting 5.84% and £1,251 per sq ft which shows good transactional evidence for prime multi-let Farringdon assets in desirable locations south of Clerkenwell Road.
The largest deal of the quarter was Meadow Partners acquisition of 1 Wood Street, EC2 from KanAm. This long leasehold (139 years UXP at 10.85% gearing) is let to Eversheds for a further 5 years off a low overall rent of only £43 per sq ft. The purchase at £132M reflected a net initial yield of 5.90% but a capital value of only £717 per sq ft for a building in a super prime location between Bank and St Pauls. Ares also continued their spending spree acquiring Fetter Yard, Fetter Lane, EC4 from Europa for £74M, 7.24% and £707 per sq ft for a LLH asset at peppercorn gearing, multi-let with a relatively strong WAULT to expiries of 10 years and 6 years to breaks. The building had been comprehensively refurbished within the last 5 years, so capital expenditure was minimal.
Other notable investment from the Middle East continues from Isreal with Valeo acquiring two adjoining buildings on Wilson Street, the largest of which, 70 Wilson Street, EC2 was a £64.7M purchase from UBS of a 10-year-old development previously let to WeWork. The purchase at £64M reflected £860 per sq ft but for a building in relatively good condition requiring minimal capital expenditure in the medium term.
Fetter Yard, Fetter Lane, EC4
1 Giltspur Street, EC1
70 Wilson Street, EC2
Sellers
European owners were the dominant sellers of City property this quarter. Most of the larger assets sold were ultimately controlled by European Fund or Asset Managers, notably 45 Cannon Street, 1 Wood Street, Fetter Yard and 70 Wilson Street. Interestingly AOG had tried to sell 45 Cannon Street, EC4 in 2017/2018 and targeted a much keener yield of 5.25% at the time but a strategic decision to divest from real estate triggered a sale to the occupier following a marketing campaign that commenced in Q4 2025 at £112.5M, 5.52% and reflecting £1,214 per sq ft. The building was developed by Morgan Capital in 2017, is held freehold, extremely well located, and multi-let to three office tenants and four retail tenants off a reversionary overall rent of £68.30 per sq ft and offering a WAULT of c.7 years. Whilst the purchaser was the major occupier in the building, there was strong underbidder interest in the building from several investors including some UK institutional capital.
Nuveen continue to sell their most liquid assets from CLOF, accounting for two of the 23 transactions. Whilst the sale of The Sans to Abrdn is the largest perhaps more interesting is the sale of 1 Giltspur Street, EC1 to a private UK investor at £15.7M which reflected a net initial yield of 9.14% and a capital value of £674 per sq ft. Advised by Allsop, the purchaser who completed the acquisition in March, will benefit from 3.5 years of income from well-established serviced office outfit Landmark. The lease benefits from CPI uplifts at rent review, currently let off £69 per sq ft passing. Let long leasehold from the City of London (116 years at 7.5% gearing) this transaction continues the theme we saw in the City Core at the end of Q4 with some high yields of 9% plus, being realised by sellers to dispose of their less liquid long leasehold assets.
Headline deals
Aside from the two largest deals of the quarter, we should discuss the German Fund Manager, HIH’s, acquisition of 70 Chancery Lane, WC2 which alongside Fetter Yard, was the third largest deal of the quarter. Despite the long leasehold tenure (175 years at 5% gearing) the leasing profile offers core income with most of the building let to WSP on a lease with c.13 years unexpired. The remaining income is generated from seven retail tenants and nine residential ASTs. Offering an EPC ‘A’ and very limited capital expenditure going forward pricing is reflective of a prime long leasehold transaction showing a yield of 5.56% off a purchase price of £74M reflecting £951 per sq ft. We would expect the freehold equivalent to transact closer to 5%.
Q1 also experienced one significant land transaction which was Chinese outfit, Giant Mind’s sale of Bavaria House, 13-14 Appold Street, EC2 to developer Altius. The site benefited from a rare planning consent for a 416 key hotel with 88,286 sq ft of best-in-class office accommodation and amenity including a gym, spa and F&B units. With Motel One in tow as an operator the buyer was able to significantly de-risk the scheme and hence the pricing achieved of £60M, £261 per sq ft (on the proposed NIA) feels strong versus any other land deals, which are few and far between.
Direction of Travel
Despite the slow and steady approach to cutting interest rates with a maximum of one further cut predicted in 2025, the reduction of margins created by increased competition in the lending market is likely to encourage further transactions.
We anticipate several more £100M+ transactions with three times more likely to trade in 2025 than 2024, assuming those under offer complete. With the velocity of interest rate cuts likely to increase in 2026, we anticipate evidence of a tightening of yields for prime assets over the next 3 - 6 months with clear evidence of values improving already.
There remains pressure on owners who have been able to extend existing loans for the short term. We therefore expect a continuation of sales driven by finance related events as banks lose patience, but also from owners of prime assets buoyed by pricing improvement experienced during recent competitive bidding processes. Value add deals are now trading at historically high capital values due to rental highs.
The £1.47Bn currently under offer suggests there is an increase in sellers and with an increasing buyer pool for larger lot sizes, transaction volumes should step up their pace of recovery into Q4 2025. A buoyant occupational market for best-in-class assets has encouraged the return of private equity investors and UK institutions to the office sector, often a sign of a turning point in the market.
With the macroeconomic picture slowly improving along with a gradual easing of the debt markets, the availability of correctly priced new opportunities will be key in determining the extent of the improvement in investment volumes going into the final quarter.
