West End Investment Market
The five year average annual investment volume is £7.95Bn for the West End market.
2019 volume to the end of Q3 stands at just £3.35Bn.
Echoing the London City market, West End investment volumes remain subdued - a trend that has been clearly documented since the start of the year. West End volume 2019 to date has been the lowest recorded since 2011. Year to date West End investment volume is £3.35Bn represented in 63 transactions – 43% down on this point last year which was £5.86Bn across 93 transactions.
A total of just under £1Bn traded in Q3 in 22 transactions. In context, this is just over a third of that recorded in Q3 2018 (£2.75Bn).
The five year average annual investment volume has been £7.95Bn for the West End market, meaning that the final quarter would need to see £4.6Bn traded to hit average. Even with some of the large opportunities in play in the wider West End: Camden Market, Holborn Links, The Post Building, Nova to name a few, it is extremely unlikely to see the year's volume being anywhere near this.
The average lot size in Q3 was £42M and throughout the quarter there has been a notable absence of large transactions with only two having been completed in excess of £100M. Unusually for the West End 13 of the 22 transactions were under £20M.
The biggest deals of the quarter were 23 Savile Row W1 for £277M and 55 Broadway SW1 for £122.5M, which both sold to UK investors (Lazari Investments and one of the family members behind the recent Grange Hotels portfolio sale). Both deals reiterate that whilst the market is subdued the West End's trophy hunters are still active, with Savile Row offering a modern freehold building with medium term income in prime Mayfair, and Broadway offering the purchaser the opportunity to create a trophy in a landmark building – we understand the buyer is hoping to achieve a hotel consent.
Our recent sales experience confirms that "super prime", rare stock such as Bond Street retail and Freehold garden square buildings, continues to achieve premium pricing.
During the quarter Allsop completed on the sale of 94-96 Wigmore Street on behalf of Aviva Investors – having commenced marketing of this Freehold mixed-use building the team undertook in excess of 60 inspections in the first three weeks of marketing. We achieved in excess of 15% over quoting price and £1,500 per sq ft. The asset attracted both owner-occupiers and value-add investors.
Once again, most of the transactions this quarter have been Freehold, with two of the three Leasehold purchases having been bought in by the Freeholder; the Crown Estate.
Purchases this quarter were dominated by UK investors, who accounted for 70% by value, taking the place of Asia domiciled investors. Buyers from the Gulf continue to be notably absent. Despite overseas investor reluctance this quarter, and by extension the start of 2019, this reluctance is not anticipated to translate to abandonment of the capital, with London still being seen by both domestic and overseas investors as a top global gateway city. Overseas investors have spent nearly £50Bn on central London commercial property investments since 2017.
As we move into the start of Q4, we expect West End investment volumes to remain subdued. However, September typically marks the start of the investment market's busiest period of the year, and in the past 6 weeks we have recorded in excess of £1.5Bn of stock that has been launched to the market on either an open or selective marketing basis, together with a number of opportunities that are under offer. Therefore, whilst volumes will be down, we do anticipate that, as per the norm, Q4 will mark the busiest quarter of 2019.
Ending on a positive, the office occupational markets continue to see unprecedented demand for good quality stock, combined with a shortage of development pipeline. The investment markets are not highly leveraged as was the case a decade ago, and Prime Freehold investment pricing continues to achieve record levels in some instances. London remains the number one gateway city for many Far Eastern and Gulf investors.
Nick Pemberton
DL +44 (0)20 7543 6775
nick.pemberton@allsop.co.uk