West End Investment Market
Overview
In summary, West End volumes remain subdued however office investors are back, as is competitive bidding.
Up until the end of September, the West End had another “average” quarter based on recent years, recording £768M of transactions during Q3 2024 either exchanged or exchanged and completed, in 20 deals with an average lot size of £38M. This is approximately half the prior 10 year Q3 average (£1.5Bn). It brings the total Q1-Q3 volume to £2.69Bn, 74 transactions – almost exactly £1Bn ahead of this point last year, but a long way to go to hit the 5 year prior average (including Covid!) of £5.1Bn.
The key theme of this quarter is the return of the office investment! If you exclude one Oxford Street retail-led deal, plus two Hammersmith blocks where residential is planned, almost all of the remaining transactions are office-led – contrasting with Q2 2024 where nearly half the volume was Bond Street Retail.
Despite the ever increasing drag on performance through high CapEx, rental growth in well-located office assets, together with falling cost of capital, is giving investors reason to bid on office opportunities.
Who is buying?
Once again, Private Investors have been the most active in the market by number of deals, with larger transactions typically from US private equity, such as Ares and Oval/Elliot. However, as is often the case we have seen a few surprises – Legal & General is buying 30 Golden Square, W1 off Aviva – a fully refurbished c £70M office building – for around 4.5% and £2,200 per sq ft. Buy-side activity from the Far East remains subdued – with two purchases in Soho/Covent Garden amounting to around £50M purchased by Singaporean investors.
Who is selling?
There remains a number of UK REITs, UK Pension Funds, and Investment Managers who are driving sales in the West End. Over the last two quarters we have seen Hong Kong investors such as Chinese Estates and the Lai family offloading assets.
Headline Deals
During Q3 we have seen Freehold offices in super prime locations trading, including Chinese Estates selling 14 St George Street, W1 for around £131M /3.8% / £2,600 per sq ft to Oval/Elliot. The same buyer also exchanged on 7 Clifford Street, W1 for £85M, around £2,100 per sq ft. 24 Savile Row, W1 sold to the Von Fink Family for £90M /4% /£3,024 per sq ft - the buyer replacing their investment in the West End market having sold 18-20 Grafton Street last quarter. The anticipated performance in each of these assets is likely to come through strong rental growth – potentially with ERV’s around 50% (or more) ahead of passing rents.
Direction of Travel
We are tracking around £800M of stock under offer as we run through the final quarter to Christmas.
We have also seen the return of two round bidding on a number of office assets: 2-3 Golden Square, W1, sold by USS to a private investor for around £40M attracting 40+ inspections; 31 St Petersburgh Place, W2 – where Allsop were appointed over the sale (Guide price £24M), achieving 30+ inspections.
This theme of super prime offices is likely to continue into Q4 with a number of other assets marketed during Q2/Q2 now under offer including Times Place, Pall Mall (c£136M/ c4.5%), 30 Golden Square, W1 (c£70M), 3 St James’s Square, SW1 (c£130M) and 20 Manchester Square, W1 (Guide £125M).
Interestingly it is the larger lot sizes that are largely causing the lower volumes – year to date there have been a greater number of sub £25M transactions in the West End than there were in the whole of 2019 – yet 2019 saw around £5.5Bn of total volume.
We estimate the year will finish at around £3.5-£4.0Bn – still 20% below the 5 year average.
Allsop have been involved in 9 of the 41 transactions since the start of the financial year.