West End Investment Market
Overview
The West End has had a second consecutive quarter where transaction volumes appear to have returned to relative normality. This quarter we recorded £987M of transactions either exchanged or exchanged and completed in 26 deals with an average lot size of £38M.
The 5 year average for Q1 is around £1.15m. This follows on from a relatively strong Q423 where around a third of the year’s total was transacted in the last couple of months of the year.
Headline Market Deals
The largest transaction by far is RLAM buying a half share in the former Meta HQ in Regent’s Place off British Land for around £192m, targeting life sciences. This follows BL taking a £150m premium off Meta to surrender their lease early. The next three largest transactions were in the £70-£75m range: Vogue House Hanover Square exchanged in early January to Global Holdings’ Ofer family for £70m; Shaftesbury Capital announced the purchase of six prime retail-led buildings at 25-31 James Street in Covent Garden for £75m; and Blackrock has sold 21-25 Bedford Street, freehold multilet offices above a large Tesco store in prime Covent Garden to Feldberg for their brown to green ReForm fund – the price reflects 5.75% and just under £1000psf having originally been brought to the market at £95M and 4.5%.
The market has been closely watching the sales of several multilet office-led assets - Bedford Street being one of them, and 55 St James’s Street another – launched in May last year by Lothbury and suffering two false starts (apparently due to issues with the building needing resolving rather than investor cold feet) it exchanged in March to Nomura for a reported £67M 4.27% and £2,375psf. The passing rents on this asset at circa £115psf are significantly reversionary.
One other transaction of note is the hotly contested South Molton Estate, where the City Corporation sold a collection of properties on South Molton Street let to over 50 tenants, for around 4.3% £62MA positive boost for Fitzrovia has been the reported sale of the BT Tower to a US hotel group. We have not included this transaction value in our quarterly stats.
Picking out some themes for the quarter, there were 8 transactions over £50m and 19 of the 26 sales were openly marketed – the remainder either off market or subject to a limited/targeted campaign. However the £+100m office market remains challenging – with the business plan for the largest trade reportedly “life sciences”.
Who has been buying and selling?
Sales over £10m have mainly come from the large UK institutional investors – The City Corporation, REITS and Funds including British Land, Shaftesbury Capital, Abrdn, Columbia Threadneedle, Lothbury, Blackrock, Axa, DTZIM and CBREGI were all represented in sales and made up half the vendors and 75% of the volume. There were however only three acquisitions by large UK funds/Reits. The majority of buyers were private overseas investors.
Direction of Travel
There has been a lack of large lot size trades by the “long haul investors”. However, with the c. £200M trade in Regent’s Place, NW1, and news that Blackstone has exchanged in April on the purchase of a prime Freehold block on Bond Street, W1 for £227M, Q2 appears to be off to a healthy start. There is still a considerable amount of stock overhanging the West End market – plenty of multi-let +£100M office buildings where rental growth expectations have not quite bridged the gap between vendor pricing expectations/historic valuations and buyer’s pricing expectations. Many of these assets are “officially withdrawn” but with a clear signal that the owners want to sell.
We see continued liquidity in good quality well-located assets.
