Over €9 bn of assets have come up for sale in the UK since the beginning of the year as investors regain confidence in the market following clarity on Brexit.
As the new year progresses, it is clear the UK is dancing to a different, more cheerful tune than last year. In sharp contrast with 2019, when the country recorded its weakest annual trading volume since the EU membership referendum took place in 2016, 2020 opened with a strong deal pipeline. Indeed, PropertyEU has tracked nearly €10 bn of assets coming up for sale in the market over the past six weeks.
The deal surge was well anticipated. Brokers have all been forecasting a roughly 20% increase in trading activity this year, largely thanks to the political clarity secured through Boris Johnson’s UK general election win as well as the yield differential between the UK capital and other major European cities. But even so, the level of interest today is astonishing, prompting one Central London broker to say he would expect as many as 50 expressions of interest right now for any value-add block in central London.
‘In addition to the absorption of some long lingering sales (several assets such as Seven Dials Warehouse, Eagle House on Jermyn Street and 101 St Martin’s Lane had been available for over 14 months before being placed under offer in January), we also witnessed swift engagement on newly-marketed assets in January, with the likes of Camden Works, Sanctuary Buildings and 2-4 Cork Street, all being placed under offer above their guide prices and within weeks of being marketed,’ commented Paul Cockburn, director in the West End investment team at Savills. ‘This heightened momentum and investor appetite provides a strong indication that we have returned to much more normal market conditions - a world apart from last year’s shuffle.’
International investors are attracted to London as a safe haven which offers political stability and positive growth prospects, as well as an attractive exchange rate and high yields, according to Nick Braybrook, head of London capital markets at Knight Frank. ‘Office yields are among the best in the world and certainly the most favourable when compared to key European centres,’ he said. In the City of London average yields are currently 4%, while in London’s West End they stand at 3.5%. Comparable yields in major European cities such as Paris, Frankfurt and Amsterdam are 3%, he added. ‘And despite the prospect of London yield compression this year, office yields still outweigh most global bond offerings.’
In addition to strong demand from Asian capital sources, the market is seeing a return of European funds looking to take advantage of the yield spread, observed Simon Glenn, co-head of London markets at BNP Paribas Real Estate. ‘Since early 2020, we are seeing new investors, particularly from France and Germany which definitely were not here last year. I could name five French institutions currently looking for London assets.’ German capital is also on the lookout for acquisitions, he added. ‘I am not talking about the traditional German funds but more about private capital. For instance, we are selling a sale-and-leaseback opportunity in Victoria and we have seen quite some aggressive bidding from multiple German capital sources.’
Improvement in investor sentiment recently prompted developer-investor Almacantar to opt for a disposal of Southbank Place, a recently completed office complex which is home to oil giant Shell and a 26,000 m2 WeWork. The landlord is said to be entertaining bids for the asset next to Waterloo station at a 3.5% yield, equating to nearly £900 mln.
Southbank Place is just one of several high-profile assets and developments currently being offered for sale in the capital city. British Land is looking for a partner to accelerate delivery of its £3 bn Canada Water scheme in south east London while Westbrook Partners is exploring a sale of the Dolphin Square estate in Pimlico for over £850 mln. Brookfield has instructed agents to sell the One and Two London Wall Place City development for £750 mln only two months after taking full control of the asset.
Although dominating the deal pipeline, the UK doesn’t rank high on the list of completed transactions as reported by PropertyEU so far this year. Instead, the list is made up of a healthy mix of markets and buyers such as Swedish housing landlord Heimstaden Bostad’s move into the Czech market with the €1.3 bn acquisition of the Residomo portfolio and Union’s purchase of the Logistrial package including 19 fully-let logistics properties in Germany, Austria, France and the Netherlands for €800 mln. The deal is part of the German investor’s plan to ‘at least double its logistics holdings of €1.2 bn in the coming years’.
Union – which says it is targeting 12 European core markets for logistics investment – might want to take a look at the CTPark Network portfolio which Dutch-based commercial real estate developer and manager CTP has earmarked for a (partial) sale. CTP, the owner of over 5.5 million m2 of industrial properties in six CEE countries, is looking for a strategic investment partner on the portfolio to reinvest the proceeds in new projects. C&W has just been appointed as exclusive advisor on the process.