A quiet February frustrates market momentum
February saw a quiet month, with only £40m of transaction volume occurring over two deals. Despite an increased level of activity during January, which saw the highest monthly turnover volume since September 2023, February then witnessed subdued investor activity and the lowest monthly turnover since October 2023. The year-to-date turnover volume now stands at £475m across seven deals, which is almost four times higher than at this point last year; however, when compared to the five-year average, it is down by 29% in terms of volume and 42% by number of deals. At the end of February, Savills is currently tracking a further £1.70bn under offer across 31 deals and c.£1.74bn of available stock.
In the largest deal of the month, Whitbread acquired the freehold interest in Churchill House, 35 Red Lion Square, WC1. The property is located on the north side of Red Lion Square, approximately a three-minute walk from Holborn station and is well positioned between the City of London and the West End. Held freehold, the property comprises 33,970 sq ft of office accommodation arranged over lower ground, ground and eight upper floors. The property was owner-occupied by the Royal College of Anaesthetists since 2004 prior to the vendor agreeing to sell the building on a short-term sale and leaseback. The property was purchased by Whitbread, with a long-term view to convert the building to hotel use (subject to planning permission), for a sum of £25m, reflecting £736 per sq ft. The acquisition marks a continuation of the familiar trend seen during 2024, with alternative use buyers targeting older office buildings with vacant possession or short-term income for conversion to hotel or other use classes. The acquisition is Whitbread’s first in the market since it acquired New London House, 6 London Street, EC3, back in September 2023 for a sum of £56.5 million, reflecting £630 per sq ft.
In another deal, a private Israeli investor acquired the freehold interest in Craftwork Studios, 1–3 Dufferin Street, EC1, for a sum of £15m, reflecting £466 per sq ft. Located on the south side of Dufferin Street and within ten minutes walking distance of Barbican, Old Street and Moorgate station, the property consists of a Victorian-style warehouse comprising 32,161 sq ft arranged over lower ground, ground and four upper floors. With approximately 70% vacancy combined with favourable permitted development rights which enhanced the opportunity for residential conversion, the property was ultimately acquired by a private residential developer, further exemplifying the aforementioned demand for change-of-use opportunities.
Despite a lack of transactions, February did see some signs of encouragement, firstly in terms of the Bank of England’s Monetary Policy Committee making a decision to reduce the base rate from 4.75% down to 4.50%. Having peaked at 5.25%, February’s rate cut is now the third cut since August 2024 and reflects an overall reduction of 75 basis points. With further reductions anticipated this year, an improving macroeconomic climate is likely to stimulate market activity. The next Monetary Policy Committee is due on Thursday 19 March.
Furthermore, the arrival of £395m of fresh stock being launched into the market during February is positive for active buyers who have generally suffered from a chronic lack of opportunities to look at over the last 18 months. With January seeing just over £200m coming to market, the uptick in available stock indicates the start of a momentum shift whereby vendors are beginning to demonstrate more willingness to commit to open market sales processes.
Savills City prime yield is 5.25%, while the West End prime yield is 4.00%.