UK Commercial:

City Investment Watch

City Investment Watch
City Investment Watch

17 July 2017, words by Ben Raywood

Another bumper month for the City sees H1 turnover 17% up on last year

Market comment and notable deals

■ June turnover was £913.44m across 12 deals, equating to an average lot size of £76.12m. This brings total turnover for the year to £4.98bn across 64 deals (£77.8m avg lot size), which is 17% up on this point last year. The rolling 12-month total turnover is currently £8.6bn, 10% up on the long-term average.

■ In the City market, we are currently monitoring 66 investment opportunities totalling circa £5.9bn. Of which, 28 are currently under-offer totalling circa £2.5bn, leaving an estimated £3.4bn worth of available opportunities. The 10 largest available assets account for 74% of total availability.

 

GRAPH 1

City turnover by quarter

 
Graph 1

Source: Savills Research – accurate to end of Q2 17

■ The estimated value of the largest five buildings currently under-offer is just shy of £2bn, giving a good indicator that turnover will exceed that of last year.

■ A notable June deal saw Deutsche Bank AG's asset management arm acquire 2 & 3 Bankside, SE1 for £310m, reflecting 5.01% and £747/sq ft. The building is let to RBS who have sub-let the entirety to Omnicom. The combined 415,155 sq ft long leasehold buildings currently have a WAULT of 10.5 years. The transaction was structured to include a second tranche payment reflecting the anticipated increase at the September 2017 rent review, which is to be capitalised at 5.00%.

■ June also saw the sale of 67 Lombard Street, EC3 from Viridis to HoBee Land for £129.3m, 4.02% and £1,381/sq ft. The 93,640 sq ft freehold building is fully let to five tenants including Arthur J Gallagher, Octo Telematics and the CFA Institute.

■ At the end of Q2, Asian investors have continued to be the most active accounting for 50% of City turnover. They are followed by European investors at 25%, and UK investors at 16%. However, activity from both the US and the Middle Eastern remains relatively muted at just a 4% share each.

GRAPH 2

City turnover by nationality

 
Graph 2

Source: Savills Research – accurate to end of Q2 17

■ Institutions have accounted for the majority of purchases so far this year at 45% of turnover. Property Companies have accounted for 38%, while Private Investors remain active accounting for 12% and Owner Occupiers 4%.

■ Demand for trophy assets remains high this year shown by the ten largest deals totalling £3.4bn, compared with the ten largest across the whole of 2016 totalled £3.1bn. With more trophy assets expected to be traded in the second half of the year, it is almost certain this gap will widen and therefore likely total turnover will surpass that of 2016.

■ In the first half of the year, Savills have been involved in £2.1bn worth of transactions across nine deals.

■ Savills prime City yield remains at 4.00%. The spread between the City and the West End is still just 75bps with the West End prime yield currently at 3.25%.

GRAPH 3

City average prime yield

 
Graph 3

Source: Savills Research – accurate to end of Q2 17

TABLE 1

Key deals in June 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