There has been much debate about the future of the office, most of which has been conjecture and speculation. But finally, there is some actual concrete transactional evidence that points to a brighter future for the central London market than most have portrayed.
International investors, always the bellwether for the health of the central London office sector, are starting to plough back in with some big-ticket deals. In the last few days three office transactions worth more than £1.5bn have been completed in central London, and a further £3bn under offer.
With this wall of money looking at central London offices, could a buyout of one of the specialist listed property companies be on the cards?
Overseas investors are clearly not worried that a working from home trend will impact on prime rents. The recent deals include Schroders’ HQ at One London Wall Place, which was sold by Brookfield and Oxford Properties to Middle Eastern investor AGC this week for £480m, reflecting a keen 3.8% net initial yield.
In the West End, Singapore’s Suntec REIT has bought a £900m stake in Nova, in Victoria, from Canada Pension Plan Investment Board. It had originally been under offer to buy the stake pre-pandemic, then pulled out but has now confirmed the buy.
Meanwhile in west London, Canadian firm Cadillac Fairview bought White City Place for around £235m, also taking on the asset’s existing debt, which increased the gross transaction value up to £950m.
The deals represent an important vote of confidence in the market and underline the attractiveness of London to capital from around the world. It is expected to be the catalyst of further investor activity in the next few months. On top of these deals, £3bn of office transactions are currently under offer in the capital, according to commercial property agency Cushman & Wakefield.
The occupational market, too, has seen an uplift in activity in recent weeks. In the last few days, Netflix has committed to 100,000 sq ft of space on Berners Street in Fitzrovia, in the West End, trebling its current London office.
Meanwhile, Google is reportedly expanding its presence in King’s Cross by 70,000 sq ft – on top of the 650,000 sq ft campus it is building at the location. The tech giant has also extended its lease at the Central Saint Giles development near Tottenham Court Road for a further decade.
This spike in activity should be comforting to listed property companies that own central London offices, all of whom are enduring drastic share price falls.
But there could also be some nervousness about the re-emergence of international buyers. Helical, in particular, looks pretty susceptible to a buyout. It has a market cap of £397m against net asset value of around £600m (as at 31 March 2020).
Following the Brexit vote in 2016, when the share price of property companies fell dramatically, overseas investors were known to be circling. With international money back looking at central London, now could be the time that they swoop on vulnerable prey.