Year end total volumes for Central London Investment could exceed 2006 levels despite current slowdown

1 Oct, 2007, London

Cushman & Wakefield Central London Investment Volumes - Q3 2007

Investment transactions worth £7.2 billion took place in Central London during the third quarter 2007, according to the latest Central London Investment market report from global property consultant Cushman & Wakefield. The report shows that activity in Q3 was concentrated in July and early August and highlights a fall in UK activity during the quarter and a shift to overseas players who accounted for the majority of deals across Central London in Q3.

City

According to the Cushman & Wakefield report the total turnover for the City for Q3 was approximately £5.4 billion, taking the total to date in 2007 to approximately £13 billion. This is up 14% for the same period in 2006 and up 8% on Q2 of 2007.

The anticipated out turn for the whole of 2007 could be as much as 10 – 15% more than the last year’s turnover, at £14 - £14.5 billion, assuming that some confidence returns to the market in the next two to four weeks.

The report shows a shift from UK to overseas activity from Q2 to Q3, with overseas investors accounting for 82% of the turnover in Q2, falling to 53% in Q3. UK funds accounted for 10% of turnover in Q2 with UK funds largely driven by the UK retail funds, accounting for 24% of turnover in Q3.

The key deals for the quarter were effectively all agreed and exchanged either in July or the very early part of August and included the sale of Mid City Place, Holborn for £325 million to Beacon Properties from America at 4.08%, 25 Canada Square for £1.025 billion to Quinlan and Propinvest at 4.5%, 5 Canada Square at £425 million to Evans Randall at 4.6% and Thomas Moore Square at £252 million to Land Securities at 6.3%. The most significant deal to occur since the onset of the global “credit crunch” has been the sale of 1 Walbrook by Legal & General to Metrovecesa of the redevelopment of Bucklersbury House at £240 million.

Since mid-August there have been relatively few transactions agreed, exchanged and completed.

The UK retail funds almost unanimously withdrew from the market at the end of July, which probably heralded the top of the market for prime yields, this event was shortly followed by the breaking news of the global financial “credit crunch” in early to mid-August. Investor confidence and the availability of funds to support highly leveraged investments effectively collapsed. A number of properties brought to the market in July and early August have been re-priced with yield movements from mid-4% to 5%.

Bill Tyser, partner, City investment at Cushman & Wakefield said: “The investment market today is going through a rapid pricing correction but unlike the cycle of the early 1990’s there are considerable recovery funds watching and waiting in the wings to invest at the right moment – the problem is at the moment no one is sure at what point this will occur and for the time being the jury remains out. A number of properties brought to the market in July and early August have been re-priced with yield movements from mid-4% to 5%.”

To date tentant demand has remained robust and the outlook for pipeline supply is for continued low vacancy rates to be maintained.

West End

The Q3, West End investment volumes are probably showing the results of a substantial amount of activity, in June and July and the first part of August. In total, there was over £1.75 billion invested in the West End in Q3. Compared to quarter two, it represents a 24% increase, and an 8% increase on the same quarter in 2006.

In the year to date, over £4.475 billion has been spent within the West End, representing the highest quarterly figure for the last three years. As expected the figures show that around 65% of the market activity is represented by overseas funds, private investment groups or overseas property companies. The UK funds represented only 14.7% of the market and UK property companies about 9.8%.

Commenting on the figures Tim Sketchley, Chairman of UK Capital Markets at Cushman & Wakefield said: “Whilst it is general consensus within the market that the volume of investment in the West End will not reach the same level as quarter for 2006 (£1.69 billion). It is easy to envisage that we will finish the year, with approximately £5.5 billion of traded investment volume in the West End alone.”

There have been some very significant transactions such as the sale of Great Minster North on Horseferry Road at a price in the order of £115 million, where the vendors, an Irish syndicate, was represented by Cushman & Wakefield. Similarly, Allied London, represented by C&W, sold the 170,000 square-foot mixed retail and residential scheme at the Brunswick Centre, Hendel Street in Bloomsbury, which was purchased by Hermes at a price in excess of £110m.

Westbrook completed the purchase of Shell Mex House at close to £0.5 billion and the Barclay brothers have sold the Daily Telegraph headquarters at 111 Buckingham Palace Road, for a figure estimated to be in the region of £250 million to private Greek investors.

Tim Sketchley continued: “Confidence in the market is returning, as the robust letting market continues to move forward with rents in excess of £135 per square foot being achieved in St James's Square. Whilst there are fewer opportunities available to investors, as vendors are considering their position following the turbulence in the finance markets, there is no doubt that overseas appetite for the West End, remains extremely strong.”

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