August sees a flurry of smaller transactions as the year-to-date deal count reaches 50 transactions
August saw a flurry of smaller transactions, with £171.9 million of transaction volume trading across eight deals. While investment activity typically slows down during the summer holidays, this month’s activity saw the highest number of deals seen during any of the summer months since 2022. The year-to-date turnover now stands at £2.17 billion across 50 deals, which, when compared to the five-year average, is 35% down by transaction volume and 6% down by number of deals.
Despite the healthy flow of transactions, the average lot size during August was a modest £21.5 million, which brings the average lot size for this year down to £43.44 million. Although the market has seen a relative resurgence of larger deals compared with the previous two years, overall turnover volumes will continue to depend heavily on the £100 million+ market to boost volumes back up to the levels typically seen over the past decade. As ever, the investment market will be influenced to some extent by the macroeconomic climate, and receding interest rates, in particular. On 6 August, the Bank of England Monetary Policy Committee voted to reduce the base rate by 25 basis points (bps) to 4.00%, marking a fifth consecutive reduction (amounting to 125 bps) since interest rates began to fall at this same point last year.
In the largest deal of the month, J.P. Morgan acquired 140 Aldersgate Street, EC1, purchasing the long leasehold interest (105 years unexpired term at 6.50% gearing) from Landsec for a sum of £50.5 million, reflecting 6.62% net initial yield and £520 per sq ft. Located directly opposite Barbican station and 2 minutes’ walk from the eastern entrance to Farringdon station, the property comprises 97,187 sq ft and is multi-let with a 2027 block date, at which time the property will be refurbished and repositioned to capture significant reversion from the current passing rent of £53.32 per sq ft overall. The deal marks J.P. Morgan’s first deal in the City market since its purchase of Spectrum, 160 Old Street, EC1, back in September 2021, and reaffirms the growing trend of institutional buyers returning to the market.
In another significant deal, M&G sold the freehold interest in 36 Queen Street, EC4, in another competitive process, which further demonstrated the depth of demand for freehold assets in City Core locations. The property is multi-let to five tenants with one vacant floor, providing a topped-up rent of £2.90 million per annum, reflecting £62 per sq ft overall, and a WAULT of 7.22 years to expiries and 5.46 years to breaks. After a competitive process, which garnered interest from institutional and private investors alike, the property was ultimately acquired by Spanish investor Metropolis for £44.13 million, reflecting a 6.15% net initial yield and £944 per sq ft.
With c.£1.97 billion of stock already available, a fresh batch of new opportunities, particularly in the larger lot size range, will be an important factor for determining how Q4 unfolds
Ed Robinson, City Office Analyst, Commercial Research
In another deal, Savills sold the freehold interest in Notcutt House, 36 Southwark Bridge Road, SE1, acting on behalf of Kessler. Notcutt House comprises 12,486 sq ft of warehouse-style office accommodation, comprehensively refurbished in 2017 and benefitting from an EPC B. The building is single-let to serviced office operator Boutique Workplace on a 15-year lease with no breaks, with 12.4 years unexpired term at a passing rent of £650,000 per annum, reflecting £52.05 per sq ft overall. Following an open market process, the property was acquired by French SCPI fund Mata Capital IM for £9.2 million, reflecting a net initial yield of 6.62% and £737 per sq ft. The deal is another example of the acquisitive mindset of many European buyers, and French funds in particular, looking to acquire high-yielding properties in Central London locations at a time when values are at a discount to historic pricing.
Unsurprisingly, August saw virtually no new stock being launched, but with market activity increasing and the macroeconomic picture gradually improving, investors will expect September to provide new opportunities to target deals before the year end. With c.£1.97 billion of stock already available, a fresh batch of new opportunities, particularly in the larger lot size range, will be an important factor in determining how Q4 unfolds and what levels 2025 final volumes will ultimately reach.
Savills City prime yield is 5.25%, while the West End prime yield is 3.75%.