UK Commercial:

City Investment Watch

City Investment Watch
City Investment Watch

17 January 2017, words by Ben Raywood

Total City turnover exceeds £8bn for the fifth consecutive year

Market comment and notable deals

■ December turnover was £1.3bn across 16 deals bringing year-to-date total City turnover to £8.07bn, 25% lower than 2015's total.

■ However, 2016 turnover was 31% up on the long-term annual average, and the fifth consecutive year where turnover has exceeded £8bn.

 

GRAPH 1

City turnover by quarter

 
Graph 1

Source: Savills Research

■ 157 deals completed in 2016 with an average lot size of £51.43m. This was similar with 2015, which saw 159 deals completed. However, due to there being 34 deals over £100m in 2015 compared with just 19 in 2016, the average lot size in 2015 was significantly larger at £69.59m.

■ In the City market, we are currently monitoring 64 investment opportunities totalling circa £3bn. Of this, 28 are currently under-offer totalling circa £1.04bn, leaving an estimated £1.95bn worth of available opportunities.

■ A notable deal from December was the purchase of CityPoint, 1 Ropemaker Street, EC2 for £561m, 4.43% NIY and £793/sq ft. The property has been bought by Brookfield from Beacon, and is currently let to tenants including Simmons & Simmons, Regus and Simpson Thacher & Bartlett LLP.

■ Also in December, Madison International acquired Oxford Properties' 50% share of King Edward Court & St Martin's Court, EC4 for £200m, 4.90% NIY and £1,147/sq ft. The buildings are occupied by The London Stock Exchange and CBRE and have a WAULT of nine years.

■ Savills advised Beijing Capital Development Holding Group in the purchase of 30 Crown Place, EC2 for £204m, 4.43% NIY and £1,033/sq ft. Samsung SRA were the sellers of the 197,481 sq ft office building, the London HQ of Pinsent Masons LLP.

■ In 2016, Asian purchasers accounted for the highest level of turnover (44%), followed by European purchasers (15%) and UK purchasers (14%). The percentage share for US purchasers is still relatively low at 10%, while Middle Eastern purchasers have only accounted for 7% of City turnover. The remaining 10% is accounted for by purchasers from other nationalities.

GRAPH 2

Turnover by purchaser nationality

 
Figure 2

Source: Savills Research

■ For 2016, the Institutions accounted for 52% of purchases, down from an 85% share in 2015. Property Companies increased their market share from 9% in 2015 to 32% last year. We also saw increased activity from private investors whose market share rose from 3% in 2015 to 10% last year.

GRAPH 3

Turnover by purchaser type

 
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 December 2016

 
Table 1

Source: Savills Research

 
 

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Key contacts

Ben Raywood

Ben Raywood

Associate
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8791