Q1 boom provokes flurry of activity
April saw a surge of activity and we recorded an investment turnover of £766m across five transactions. This reflected a 53% increase on the five-year average, albeit the majority of this volume was largely attributed to a single trade. April’s activity brings year-to-date turnover to £2.77bn across 29 deals (a substantial uplift on the turnover witnessed in the same period last year, whereby we reported £922m across 26 transactions).
The largest deal in April was GIC’s acquisition of a 75% stake in Paddington Central, W2 from British Land (who retain the remaining 25% share) for a reported £694m. The purchase reflects 4.50% NIY and £1,224 psf across a range of assets. The joint venture initially comprises six assets which generate a passing rent of c.£52.7m per annum, reflecting £71.40 psf overall, and a WAULT of 5.5 years on the let accommodation. Key tenants at the estate include Visa Europe, Microsoft and Prudential. GIC will be granted an unconditional option to acquire 50% of 5 Kingdom Street, a 438,000 sq ft new development site within British Land’s Paddington Central ownership, for £68.5m.
Other transactions included Lee Kim Tah Group’s freehold disposal of Chiswick Medical Centre, W4 to PHP. The property is single let to HCA International until 2041 at a passing rent of £52 psf, subject to five-yearly RPI-linked reviews and a tenant only break clause in 2031 (£34.5m, 4.11% & £1,313 psf).
The sale of the interest within Paddington Central marked the sixth transaction above £100m so far this year (the highest level since 2017, which observed seven £100m+ deals by end of April) and the total volume attributed to these transactions accounts for 83% of turnover this year so far. The increase in volume has coincided with an uptick in other newly marketed stock over the course of the month.
Savills tracked £387m of assets marketed in April (including both open and selective processes) across seven buildings, including Brockton’s Portobello Dock (Q.£42.65m, 4.98% and £811 psf), Lothbury’s 15–16 Bedford Street, WC2 (Q.£33.5m, 4.42% and £1,543 psf) and a UK charity’s 7 Ridgmount Street, WC1 (Q.£27.5m and £942 psf).
In April, a number of sales have proceeded to bids with the most significant being 49 Park Lane, W1. The headquarters office building, owned by Pembroke, is single-let to US law firm WilmerHale for a further 7.5 years at a passing rent reflecting £98 psf. This asset represents the first prime deal so far this year, by reference to location, tenure and income profile. At a quoting price of £82.5m, 3.10% and £2,960 psf for the freehold interest, the outcome of the sale process will set the benchmark and will act as a strong bellwether for the West End prime yield. In terms of development transactions, Ballymore held the first round of bids for the joint venture opportunity in Eg:HQ, Nine Elms. The site benefits from planning consent for a c.220,000 sq ft office-led scheme and the vendor is seeking offers in excess of £80m for the land payment, reflecting c.£366 psf on the consented area.
Seven openly marketed assets were placed under offer over the course of the month totalling £286m. However, whilst the market seems poised for an active Q2, the ever-changing geopolitical and economic environment could present hurdles. Led by a further expected hike in the Bank of England base rate and the much-reported inflationary pressures, it will be interesting to observe the effect of such macro pressures on the investment market.
Savills prime West End yield remains at 3.25% and the Bank of England base rate also remains the same at 0.75%, while the UK Treasury yield has increased and stands at 0.69%.