2019 south east offices investment bulletin second …€¦ · one eton street, richmond size:...
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7 68
910
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15
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1918
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14
13
2625
M23M3
M4
M40
M1 A1(M)
M20M2
M25
M11
Guildford
Croydon
Hemel Hempstead
Watford
Luton
Newbury
Reading Heathrow
Stansted
Gatwick
Oxford
High Wycombe
Royal Tunbridge Wells
Maidstone
Brighton
5.25%prime NIY yields remained stable
2019 SOUTH EAST OFFICES INVESTMENT BULLETIN SECOND QUARTER 2019
36deals completed throughout Q2 2019
2,500
2,000
£ Million
1,500
1,000
500
0
Q1
2012
Q1
2013
Q1
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2016
Q3
2013
Q2
2013
Q3
2014
Q4
2014
Q2
2014
Q4
2013
Q1
2014
Q2
2012
Q3
2012
Q4
2012
Q2
2015
Q3
2016
Q2
2019
£543
m£713
m £861
m
£615
m
£114
6m
£632
m
£476
m
£876
m
£725
m
£327
m
£109
7m
£873
m
£867
m
£116
6m
£793
m
£111
7m
£559
m
£328
m
£770
m
£470
m
£295
m£193
m
£220
m
£452
m
£89m
Chi
swic
k P
ark
£103
7m
Gre
en P
ark
£718
m
Fras
ers
Pro
pert
y P
ortfo
lio
£155
2m
£102
4mQ
4 20
18
Q1
2019
£387
m
Quarterly transaction volumes Q1 2012 - Q2 2019Source: Gerald Eve
South East Office Investment Market Review - Q2 2019Q2 2019 by numbers
40%Institutions were the most active vendor accounting for 40% of all transactions
22%of deals were completed by property companies who were the most active buyers
£350mof South East offices are under offer
OverviewDespite the challenging macro-economic environment and ongoing uncertainty as a result of Brexit being extended until October, there is a positive underlying sentiment for South East offices. However, the subdued trend in investment volume from Q1 2019 has continued into Q2 2019 and the statistics remain behind their respective quarters last year.
Following a period of relative inactivity during the build up to the original Brexit deadline, we have however seen a positive increase in quarterly activity in Q2, as frustrated investors selectively returned to the market for the right opportunities. As a result, the transaction volume in Q2 increased by 40%, reaching £543m (average lot size £15m), which, whilst improved, is low in the context of the five-year average (£867m). Whilst transaction volumes (by value) may appear low in comparison to previous years, a total of 36 deals exceeds those recorded in Q1.
Q2 has seen a return of property companies and private equity to the market, representing 22% and 17% of total acquisitions (by value) respectively. Two significant deals this quarter included the acquisitions of Gresham House and Portland House Crawley (CLS Holdings), and Ditton Park Slough (Kennedy Wilson). Conversely, local authorities have significantly reduced their activity, accounting for just 16% of acquisitions (37% less than Q1).
H1 2019 has seen a notable increase in off-market and restricted marketing transactions to a bespoke target list, typically consisting of local authorities and institutions, as vendors have been seeking premium pricing through exclusive campaigns. Whilst completion timescales are becoming prolonged, we have also noted a contraction in the number of underbidders compared to those on similar assets a year ago, as there remains a standoff between vendors and purchasers on pricing.
Prime yields have held stable at 5.25% since the end of last year, offering a competitive return in comparison to the central London and industrial markets. Whilst prime liquid assets underpinned by robust fundamentals remain keenly sought after, investors have become more discerning with their investment criteria. Secondary assets, which carry an increased level of perceived risk, have softened by around 50-75 bps in the last 12 months as the yield arbitrage between prime and secondary assets has widened.
Investors will take comfort in the robustness of the South East occupational market as income continues to be a key driver in investment performance at this stage of the cycle. The underlying fundamentals in the South East include; acute pressures on availability, increasing take up of Grade A space, scarcity of speculative development, strong demographic compositions and improving infrastructure connections, which will likely translate into continued rental growth.
£543mof South East offices transacted
Q2 key investment transactions
Local AuthoritiesLocal authorities had firmly established themselves as the most active investor in the South East during 2018 and into Q1 2019. However, the combined impact of the local elections in May and the adoption of a more focused investment criteria, has meant there has been a notable fall in activity. Nonetheless, local authorities have completed on large acquisitions, including the sale of Woking One to Woking Borough Council, which Gerald Eve advised the vendor on. Looking ahead we expect a bounce back in demand in H2 2019 as their annual budgets get renewed, new councils enter the market and the looming cuts in funding draw closer.
InstitutionsInstitutional demand remains focused on prime assets in town centre locations that offer minimal exposure to any short/medium term market volatility. Institutions were the most active vendors in Q2 and despite completing on a number of large acquisitions they finished the quarter as net vendors. Key disposals included, Four10 Thames Valley Park Reading (RLAM), Keats House Leatherhead (Aviva) and One Eaton Street Richmond upon Thames (Aberdeen Standard). Following a brief window of retail fund redemptions, leading to several selective disposals, normality has returned. Notable acquisitions last quarter included; 1&2 Windsor Dials (Canmoor/BA Pension Fund), 177 Preston Road Brighton (Delancey/Franklin Templeton) and Victory House Brighton (NFU).
Property Companies Property companies were the most active purchaser of South East offices in Q2 with £119 million transacted across 9 deals. Property company activity resulted in a 268% increase in acquisitions on Q1 as they capitalised on the readily available debt for core offices, as well as the healthy rental growth and a softening in prices which is in-turn driving reversionary yields. Key acquisitions have included Gresham House and Portland House Crawley (CLS Holdings), Waterside Court Slough (RO Real Estate) and GlaxoSmithKline’s Stockley Park West Campus (Prologis) for a c300,000 sq ft industrial redevelopment scheme.
International Property Consultants
Ditton Park, SloughSize: 194,565 sq ftPrice: £41.3m (£212.27 psf)NIY: 3.23%Purchaser: Kennedy Wilson
1&2 Windsor Dials, Windsor Size: 68,669 sq ftPrice: £25.25m (£367.71 psf)NIY: VPPurchaser: Canmoor / BA Pension Fund
Bridge House, GuildfordSize: 40,912 sq ftPrice: £17.7m (£432.64 psf)NIY: 5.60%Purchaser: McAleer & Rushe
Focus 31, Hemel HempsteadSize: 38,557 sq ftPrice: £5.7m (£147.83 psf)NIY: 7.75%Purchaser: Private Family Office
Woking One, WokingSize: 60,245 sq ftPrice: £27.2m (£451.49 psf)NIY: 5.58%Purchaser: Woking Borough Council
Renaissance, Croydon Size: 100,487 sq ftPrice: £57.5m (£572.21 psf)NIY: 5.00%Vendor: M&G
Oriel, Quadrant & Boston House, Richmond Size: 57,390 sq ftPrice: £27.97m (£487.00 psf)Vendor: Aviva
One Eton Street, RichmondSize: 48,300 sq ftPrice: £34.5m (£714.29 psf)NIY: 5.40%Purchaser: Europa Capital Partners
Victory House, BrightonSize: 84,988 sq ftPrice: £36.5m (£429.47 psf)NIY: 4.83%Purchaser: NFU Mutual
Four10 TVP, ReadingSize: 71,000 sq ftPrice: £38m (£535.21 psf)NIY: 5.30%Purchaser: Reading Borough Council
177 Preston Road, BrightonSize: 34,849 sq ftPrice: £11.3m (£324.26 psf)NIY: 5.06%Purchaser: Delancey / Franklin Templeton
ONES TO WATCH
ONES TO WATCH
SOLD TO LETTO LET
GERALD EVE
ADVISED
GERALD EVE
ADVISED
GERALD EVE
ADVISED
GERALD EVE
ADVISED
www.geraldeve.com
2019 SOUTH EAST OFFICES INVESTMENT BULLETIN
Key deals, left to right: Renaissance, Croydon, Ditton Park, Slough
Disclaimer & copyright
This brochure is a short summary and is not intended to be definitive advice. No responsibility can be accepted for loss or damage caused by reliance on it.
© All rights reserved
The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP.
South East office investment team
Charles BoyesPartnerTel. +44 (0)20 3486 3472Mobile +44 (0)7796 [email protected]
Guy FreemanPartnerTel. +44 (0)20 3486 3471Mobile +44 (0)7796 [email protected]
Will PowlesSenior SurveyorTel. +44 (0)20 7333 6387Mobile +44 (0)7788 [email protected]
Jason NearchouPartnerTel. +44 (0)20 3486 3475Mobile +44 (0)7704 [email protected]
4,500£ million
3,500
2,500
1,500
500
4,000
3,000
2,000
1,000
02014 2015 2016 2017 H1
2019
£2,8
77m £3
,923
m
£3,8
24m
£930
m
£3,2
09m
2018
£3,7
44m
180£ million
80
60
40
20
0West
LondonGreaterLondon
ThamesValley
M3Corridor
North South
£90.
5m 1
6.7%
£30.
2 5.
6%
£152
.5m
28.
1%
£61.
8m 1
1.4% £1
30.9
m 2
4.1%
£77.
6m 1
4.3%
160
100
120
140
South East office annual invesment volumeSource: Gerald Eve
Investment volume by sub-region,Q2 2019Source: Gerald Eve
45%
20
35
40
30
25
15
10
5
0VP <6% 6-7% 7-9% >9%
25.1
%
42.1
%
8.0% 20
.9%
3.9%
Investment volume by net intial yield,Q2 2019Source: Gerald Eve
Purchasers by investor type 2019Source: Gerald Eve
13.4%Institutions
21.9%Property
Companies
12.2%Private & Charity
3.1%Overseas
12.7%Developer
16.9%Private Equity
16.4%Local Authority
1.5%Undisclosed
Vendors by investor type 2019Source: Gerald Eve
1.5%Managed Funds
40.1%Institutions
2.5%Private and Charity
12.1%Private Equity
13.1% Corporate
Overseas InvestorsThe limited exposure from overseas investors we reported in Q1 was replicated in Q2 as the weight of capital targeting South East offices became more central London and ‘Big 6’ focused. We are aware of active requirements in the market, however we are also aware that there are a limited number of Shariah-compliant opportunities of scale too. We expect overseas investor activity to grow throughout the rest of the year as pressure on sterling continues to make the UK an attractive place to invest. Notable Q2 transactions included Inspired Bracknell - a recently refurbished Grade A multi-let building, with an AWULT in excess of 5 years.
SECOND QUARTER 2019
Ones to watch
PropertyLettable
area (sq ft)
Sold PriceVendor
Yield (NIY) Price Price (psf)
Renaissance, Croydon 100,487 5.00% £57,500,000 £572.21 M&G
Oriel, Quadrant & Boston House, Richmond 57,390 - £27,972,000 £487.00 Aviva
Private Equity Q2 marked an important return for private equity investors as repositioning opportunities, providing significant asset management potential to capture rental growth and double-digit returns have been brought to the market. These opportunities however remain limited and have been hotly contested with 1&2 Windsor Dials witnessing a very competitive bidding process. We anticipate a similar level of demand for Oriel, Boston and Quadrant House, Richmond as it offers a unique opportunity to acquire a prime Greater London site with immediate and future repositioning potential.
Outlook and Market Insight • At the end of Q2 £350 million of South East
Offices were under offer across 23 deals. • We anticipate greater deal volumes over the
summer months as vendors take advantage of the period before the Brexit deadline and potential political upheaval in October.
• Off market deals and an increase in local authority activity will help support volumes in Q3.
• The underlying fundamentals in the occupational market will drive rental growth.
• Prime yields are likely to remain firm at 5.25%.• We expect a softening in yields on secondary
assets throughout 2019 which could create buying opportunities.
• The institutions will continue to buy selectively in core markets.
• The weak pound will continue to make the UK attractive to overseas investors.
1.8%Corporate
15.2%Property Companies
10.7%Overseas
3.7% Developer
1.0% Sale and Leaseback
*Gerald Eve advised
Q2 2019 key deals
PropertyLettable
area (sq ft)
Sold PricePurchaser
Yield (NIY) Price Price (psf)
1&2 Windsor Dials, Windsor 68,669 VP £25,250,000 £367.71 Canmoor / BA Pension Fund
Ditton Park, Slough 194,565 3.23% £41,300,000 £212.27 Kennedy Wilson
Bridge House, Guildford 40,912 5.60% £17,700,000 £432.64 McAleer & Rushe
177 Preston Road, Brighton 34,849 5.06% £11,300,000 £324.26 Delancey / Franklin Templeton*
One Eton Street, Richmond 48,300 5.40% £34,500,000 £714.29 Europa Capital Partners
Victory House, Brighton 84,988 4.83% £36,500,000 £429.47 NFU Mutual*
Focus 31, Hemel Hempstead 38,557 7.75% £5,700,000 £147.83 Private Family Office*
Woking One, Woking 60,245 5.58% £27,200,000 £451.49 Woking Borough Council*
Four10 TVP, Reading 71,000 5.30% £38,000,000 £535.21 Reading Borough Council