UK Commercial:

West End Investment Watch - Sept 2015

West End Investment Watch
West End Investment Watch

16 September 2015, words by Mat Oakley

UK institutions break five-year average acquisition trend ahead of anticipated stock surge.

Market comment and notable deals

■  August saw volumes of £597m across 13 transactions pushing West End turnover over £5bn, broadly in line with the same period last year.

■  UK institutional acquisitions are already 26% up on the average five-year take up levels totalling just over £1bn, 80% of the total volume recorded in 2014 (see Graph 1). UK institutions have focused much more heavily on larger sized deals with the average transaction size up 27% on last year. We predicted in May that UK Institutional activity would exceed last years total of £1.29bn well before year end and this now looks probable by the end of Q3 however record levels of £1.85bn in 2006 still look out of reach.

 

GRAPH 1

Institutional activity

 
Graph 1

Source: Savills Research

■  Savills was involved in almost 40% of West End transactions this month and in the largest deal in August advised Hermes Central London Limited Partnership on their purchase of Haymarket House, 28-29 Haymarket. The freehold interest comprises 123,122 sq ft of mixed-use space, fully let to ten tenants with a weighted average unexpired term of over 10 years to expiry. The property was acquired from Land Securities for a price of £156m, reflecting a net initial yield of 3.92% and a capital value of £1,267 per sq ft.

■  Kildare Partners has sold 2 Park Street for £74.48m, reflecting a 3.28% net initial yield and a capital value of £1,480 per sq ft. The long leasehold interest totals 50,342 sq ft of office accommodation and is multi-let with a weighted average unexpired term of approximately five years to expiry. The Vendor acquired the property in September 2013 with the same income profile for £52m, reflecting a net initial yield of 4.4% and a capital value of £1,087 per sq ft. This deal highlights the extent of yield compression witnessed over the last 24 months in the West End; the purchaser is no doubt encouraged by the rental growth story illustrated in the recent leasing success and subsequent sale of 110 Park Street.

■  Ho Bee Land acquired 110 Park Street for £45.8m, reflecting a 4.16% net initial yield and a capital value of £1,637 per sq ft. The long leasehold interest totals 27,974 sq ft of office accommodation and is multi-let with a weighted average unexpired term of approximately 8.5 years. The vendor, Aberdeen Asset Management had acquired the property only 16 months previously for £33.7m and took advantage of the lease events and a rising rental market over their hold period leading to a significant increase in the gross rent by almost 70%.

■  Demand for vacant West End property remains exceptionally strong, demonstrated by three acquisitions this month being for owner occupation. The two largest of which were the sale of 33 Foley Street to Kier Group for £55m reflecting a capital value of £1,603 per sq ft and 35 Berkeley Square to Wing Tai for a capital value of £2,431 per sq ft.

■  The IPD average equivalent yield stands at 4.71%, whilst the average IPD initial yield continues to trend downwards and stands at 2.95%.

■  We expect a stock surge over the coming months with a range of product being introduced to the market. With £1.2bn of property already available or under offer, the run up to the end of 2015 promises to be extremely active.

GRAPH 2

Yields

 
Graph 2

Source: Savills Research, IPD

 

 

 

TABLE 1

Key deals in August 2015

 
Table 1

Source: Savills Research

 

 
 

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Key contacts

Mat Oakley

Mat Oakley

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8781