UK Commercial:

City Investment Watch

City Investment Watch
City Investment Watch

15 February 2017, words by Ben Raywood

Investors 'flight-to-safety' set to continue in 2017

Market comment and notable deals

■ January turnover was £269.2m across seven deals, equating to an average lot size of £38.46m.

■ In the City market, we are currently monitoring 68 investment opportunities totalling circa £3.7bn. Of this, 26 are currently under-offer totalling circa £1.9bn, leaving an estimated £1.8bn worth of available opportunities.

 

GRAPH 1

City 12-month rolling total turnover

 
Graph 1

Source: Savills Research

■ A notable deal from January saw AmTrust acquire Exchequer Court, 33 St Mary Axe, EC3 for £105m, 5.48% NIY and £700/sq ft from Q Super. The building is multi-let to 10 tenants including Travelers Management, Argo Underwriting Agency and Pinebridge Investment with a WAULT of 4.5 years.

■ Also in January, Savills advised a private investor on the purchase of 11-15 Borough High Street, SE1 for £15m, 3.37% NIY and £1,634/sq ft. The building is single let to Pret A Manger Europe Limited with a WAULT of seven years.

■ To date in 2017, US purchasers have accounted for the highest level of turnover (39%), followed by European purchasers (38%) and UK purchasers (17%). Investors from Asia accounted for the remaining 6%. However, we expect the Asian investment market share will significantly increase over the first quarter as these investors continue to take advantage of the currency shift. Savills are aware of a number of larger transactions currently under-offer to Asian-Pacific investors.

GRAPH 2

Turnover by WAULT

 
Graph 2

Source: Savills Research

■ A trend emerging in the City investment market is that investors are targeting longer term income assets. Over the course of 2016, investments with WAULT's of 10+ years accounted for 31% of turnover, compared with just 22% in 2015. Savills believe this trend will continue as investors become more risk averse.

■ Savills prime City yield has remained at 4.25% for the eighth consecutive month. The spread between the City and the West End is still 100bps with the West End prime yield currently at 3.25%.

GRAPH 3

City & West End prime yield

 
Graph 3

Source: Savills Research

■ It was encouraging for the City market to see investment rise from £1.1bn in Q3 to £2.7bn for Q4. We anticipate the good level of demand to continue through into Q1 2017, as foreign investors continue to look to the Capital for secure investments, while benefiting still from the currency shift.

■ Savills prime City yield has remained at 4.25% for the seventh consecutive month. The spread between the City and the West End is still 100bps with the West End prime yield currently at 3.25%.

■ Although 2016 was a year full of surprises that threatened the stability of the market, the strong fundamentals coupled with the currency shift ensured another strong year of investment for the City.

TABLE 1

Key deals in January 2017

 
Table 1

Source: Savills Research

 
 

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Ben Raywood

Ben Raywood

Associate
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8791