Renewed appetite to transact as we move into Q4
August proved to be a subdued month in terms of investment volume across the City as seven deals totalling £444.76m transacted, of which just one was in excess of £100m in lot size. Savills is tracking a further £3.6bn of stock which is under offer across 28 deals, and a further £4.1bn across 73 deals available in the market.
On behalf of Goldman Sachs and Greycoat, Savills, jointly with Eastdil Secured, has been instructed to sell the long leasehold interest in Vintners Place, 68 Upper Thames Street, EC4. The property is located on the northern bank of the River Thames in proximity to Bank, Bloomberg Place and St Paul’s Cathedral and is multi-let to finance and pharmaceutical tenants with a WAULT of 4.8 years to breaks and 5.0 years to expiry at an average passing rent of £52.52 per sq ft. The long leasehold from the Vintners Company is for 150 years from December 1989, at 7.5% gearing, providing an unexpired term of 117 years. Savills has been instructed to seek offers in excess of £208.5m, reflecting a net initial yield of 6.25% and a capital value of £763 per sq ft.
In previous publications of the City Investment Watch, we have recognised the challenging environment brought about by high levels of inflation and rising interest rates. At the time of writing, the five-year SONIA rate is 3.9%, however, despite experiencing a summer lull in transactional activity, we are seeing signs of renewed investor focus with deals being agreed and closed.
A common theme over the course of the last 18–24 months has been the lack of good quality stock at liquid lot sizes
Will Wilson, Analyst, Commercial Research
In the largest transaction in August, representing 72% of total investment volume for the month, MEAG exchanged contracts to acquire 50% of the long leasehold interest in Fen Court, 120 Fenchurch Street, EC3. Located to the north side of Fenchurch Street, the property comprises 427,000 sq ft of office and retail accommodation with the offices multi-let to three tenants, including M&G, Newline and WeWork, at a net passing rent of £26.7m per annum. M&G occupies 75% of the accommodation by floor area, and we understand MEAG’s parent company, Munich Re, is set to occupy part of the building. The property is held long leasehold for a further 194 years unexpired at a head rent of 5.0%, and pricing is understood to be in the region of £310m for the 50% share, reflecting a net initial yield of 4.25% and a capital value of £1,452 per sq ft.
Earlier in the month, ACAI Group acquired the freehold interest in 2 London Bridge, SE1, for 5% above the quoting price. A common theme over the course of the last 18–24 months has been the lack of good quality stock at liquid lot sizes, and the sale of this prominent river-fronting building illustrated the strong appetite from investors to acquire high-quality core assets. Located opposite London Bridge station with views north of the River Thames, the property is multi-let to six office tenants and one retail tenant, generating a topped-up passing rent of £3,145,285 per annum. The price was £62m, reflecting a net initial yield of 4.75% and a capital value of £1,227 per sq ft.
In a good example of market activity, we understand proposals were received for 1 New Street Square. Located in the heart of Midtown and completed in 2016, the building occupies a prominent position and is let in its entirety to Deloitte for a further 14 years and is subject to annual fixed increases in the rent of 2.35%. Totalling 276,502 sq ft (25,687 sq m) of Grade A office, retail and ancillary accommodation arranged over ground, upper ground and 14 upper floors, the property is held long leasehold from The Goldsmiths’ Company for a further 149 years unexpired at a head rent equal to 7.0% of rents received. The quoting price is £475m, reflecting a net initial yield of 3.75% and £1,718 per sq ft.
Savills City prime yield sits at 4.00%, which compares to the West End prime yield of 3.25%. The MSCI City average equivalent yield currently stands at 5.34%, while the net initial yield is 3.57%.