UK Commercial:

West End Investment Watch

West End Investment Watch
West End Investment Watch

17 January 2017, words by David Garland

Positive end to the year dominated by Middle Eastern Investment

■ December saw turnover of £805m, bringing total annual turnover to £7.86bn over 170 transactions. This was 9% and 12.5% lower than the previous two years annual turnover respectively albeit still the fourth highest on record, exceeding the 10-year average by over 10% (see Graph 1). We believe that the strong market sentiment witnessed in Q4 2016 will continue in the New Year, not least down to the anticipated exchange of three transactions totalling almost £1bn.

 

GRAPH 1

West End Turnover

 
Graph 1

Source: Savills Research

■ In an off-market transaction and their fourth known sale of 2016, Derwent London sold the freehold interest in 120- 134 Tottenham Court Road for £69.7m, reflecting a 3.32% net initial yield and a capital value of £399 per sq ft. The property occupies a 0.8 acre site and comprises a hotel, let to Radisson for a remaining 147 years (17 years to tenant break option), and over 26,000 sq ft of retail space, leased to 11 tenants.

■ Savills advised Orchard Street Investment Management on their purchase of 25 Great Pulteney Street after the property was selectively marketed by BMO Global Asset Management over the final quarter of 2016. The property comprises 33,058 sq ft of office accommodation let to five tenants at an average passing rent of £70.80 per sq ft overall. The building sold in December for £54.4m, reflecting a net initial yield of 4.0% and a capital value of £1,646 per sq ft.

■ Cardinal Lysander has sold Boston House, 36-38 Fitzroy Square to a private European Investor for £24m, reflecting a 3.38% net initial yield and a capital value of £1,146 per sq ft. The freehold property is single let to Arup Group until February 2019 at an average passing rent of £39.91 per sq ft, although Arup are not in occupation and have sub let all floors to two tenants. This openly marketed sale attracted considerable interest from a range of investor types and after going through an extensive bidding process, the price achieved was 20% in excess of quote.

■ UK buyers remained the largest investor group over 2016, albeit this was down 31% in terms of turnover volume compared to 2015. Middle Eastern investors were notably active in the final quarter with turnover from this region equating to over 40% of market share (see Graph 2).

GRAPH 2

West End Market Share by Origin

 
Graph 2

Source: Savills Research

■ Savills Prime yield remains at 3.25%, with the IPD equivalent yield now standing at 4.89% having softened 24 basis points over the last 12 months (see Graph 3).

GRAPH 3

Yields

 
Graph 3

Source: Savills Research, IPD

■ Savills advised on six transactions in December, which equated to 45% of turnover by volume.

TABLE 1

Key Deals in December 2016

 
Table 1
 
 

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David Garland

David Garland

Research Analyst
Commercial Research

Savills Margaret Street

+44 (0) 20 7016 3832