A record Q2 as 2018 begins to heat up
Market comment and notable deals
- Investment volumes in June reached £3.04bn across 15 transactions, the highest monthly turnover to date in 2018, this takes Q2 turnover to £4.06bn, the largest transacted in the City of London market in Q2 and 47% up on 2017 figures. Despite the record volume, the number of transactions, (56) by H1 2018 is still below 2017 figures (63) and 25% down on the five-year average of 74 deals.
.png "Key deals in June 2018")
TABLE 1 | Key deals in June 2018
Source: Savills Research
.png "Q2 turnover by year")
GRAPH 1 | Q2 turnover by year
Source: Savills Research
- The increase in volume has been driven by a number of high profile transactions finally having exchanged/ completed in June. Most notably the sale of 5 Broadgate, EC2 to CK Asset Holdings for £1bn reflecting a net initial yield of 3.95% and a capital value of £1,364 psf. The building was developed in 2015 and is fully occupied by UBS, with a weighted average unexpired term of c.18 years.
- HoBee Land also completed their acquisition of Ropemaker Place, 25 Ropemaker Street, EC2 for £650m, reflecting a net initial yield of 4.62% and a capital value of £1,081 per sq ft. The freehold building comprising 601,260 sq ft is multi-let to five office tenants and one retail tenant at a rent of £51 per sq ft overall.
- Another notable transaction for June was the forward funding of 17 Charterhouse Street, EC1 by M&G for £265m, reflecting a net initial yield of 3.94% and a capital value of £1,541 per sq ft. The property will be let entirely to Anglo America at practical completion at a rent of £10.62m per annum on a 25-year lease, subject to fixed annual 2.50% increases, reviewed every five years.
- The sale of 5 Broadgate is the fourth building to trade over £1bn in the City, and the third in the last 18 months. The sale of Goldman Sachs new European HQ at Plumtree Court, now reportedly close to going under offer is set to be the fifth £1bn+ building. Of the four largest single asset transactions, three have now been acquired by Hong Kong investors.
.png "The £Billion Building Club")
TABLE 2 | The £Billion Building Club
Source: Savills Research
- Overseas investment reached record levels in H1 2018, accounting for 80% of total turnover. Investors from Asia continue to lead the way, acquiring 14 buildings by the half year, totalling £3.38bn, with an average lot size of £241.52m.
- An interesting development in 2018 has been the re-emergence of UK buyers, who have accounted for the largest number of deals by H1 (25) and have invested a total of £1.07bn into the market this year, compared to the £1.50bn invested for the whole of 2017. The diversity of buyers continues to be a trend with 14 different nationalities having already invested into the City to date in 2018.
.png "Top 5 Investors year-to-date (by Nationality)")
TABLE 3 | Top 5 Investors year-to-date (by Nationality)
Source: Savills Research
- Savills Prime City yield remains at 4% which compares with the West End prime yield of 3.25%.