West End Investment Market

2018 West End volume totalled £7.56Bn across 129 transactions, with an average lot size of £59M

The West End Team recorded a total of £1.7Bn either exchanged or exchanged and completed in 36 transactions during Q4 2018, which illustrated a 10% increase on Q4 2017 (£1.6Bn).

This brings the 2018 West End volume to a total of £7.56Bn across 129 transactions, with an average lot size of £59M, which is remarkably close to 2017’s total of £7.61Bn across 118 transactions and in excess of the 10 year average (£6.78Bn).

The quarter’s total was buoyed by the sale of four large assets, all in excess of £100 million: 125 Shaftesbury Avenue (to KB Securities); Sanctuary Buildings, SW1 (to a JV – Hana Financial Group & Mirae); Standbrook House, W1 (to a Private Hong Kong investor); and 200 Piccadilly (to Motcomb Estates), with a combined lot size of £0.84Bn. Three of the buildings were sold to Far Eastern investors, two of which (Shaftesbury and Sanctuary) were to South Korean capital. Both investments bought with South Korean monies offered secure office income in excess of 15 years and illustrates investor appetite, particularly from this geographic region, for secure, long-term income streams requiring minimal asset management and low

capital expenditure going forward.

The Q4 2018 total has been lower than anticipated being impacted by a number of high profile sales failing to transact due to Brexit uncertainty (- 23 Savile Row, W1) and agreeable pricing eluding parties (- Seven Dials Warehouse, WC2).

2018’s West End Investment market has experienced a shortage of stock in the £40M to £80M bracket, with just 17 of the 129 deals totalling taking place in 2018 in this price range (22 out of 118 in 2017). This year has been characterised by the trade of larger lot sizes with the top 25 transactions (all over £80M) comprising two thirds of the 2018 total volume.

Overseas capital has, throughout 2018, continued to show confidence in West End investment opportunities, with these investors dominating the year’s purchases. Approximately 65% of 2018’s West End market activity was transacted by international investors. The geographic originof this weight of capital is diverse, however it remains dominated by Asian and Middle Eastern investors (52%), who are targeting larger lot sizes. Notably, 75% of the top 25 deals recorded were bought by overseas monies. Non-UK investor demand has remained robust in 2018 in a market environment of low interest rates, weakened sterling and a healthy debt market.

These economic factors, combined with a resilient occupational market, have resulted in stability in London’s West End investment market in particular for prime, quality products offering secure income, minimal capital expenditure and a relatively hands-off asset management strategy.

Over the past year the number of leasehold interests transacted has been 12% of deals (significantly below the average of 17%) and 60% of these deals were to “special interest” parties. We believe this trend reflects the of dominance overseas capital chasing “freehold only” assets, and we expect to see price softening of leasehold interests as a result in the coming year.

Continuing to look ahead to 2019 we anticipate that market sentiment for prime core freehold “best in class” assets will remain strong with prime yields and pricing remaining broadly stable and the enthusiasm for trophy products continuing to come from overseas investors. However, the disorderly Brexit that we are experiencing does mean we are currently witnessing buyers (both domestic and foreign) procrastinating. Although generally the outlook remains positive and we expect this positivity to increase as the year progresses as we gain greater political clarity.