2016 SOUTH EAST OFFICES INVESTMENT MARKET
Quarterly transaction volumes Q1 2012 - Q4 2016
ANNUAL REVIEW
2016 by numbers
2016 South East Office Investment Market Commentary
Source: Gerald Eve
£ Million
2,000
£857m
£711m
£602m Green Park £563m
£1044m
Q4 2016
Q3 2016
Q2 2016
Q1 2016
£3.05bn
£22.1m
of south east offices
transacted in 2016, a 23% decrease on 2015.
was the average lot size transacted, 9% smaller than 2015.
31%
£563m
£321m
Q4 2015
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
£325m
£480m
Q3 2013
Q2 2013
Q1 2013
Q4 2012 £193m
Q3 2012 £220m
Q2 2012
0
Q1 2012 £166m
200
£451m
400
£295m
600
£565m
£737m
800
£949m
£982m
1,000
£1146m
1,200
£790m
1,400
£924m
1,600
£858m
Chiswick Park £780m
1,800
was purchase price of
the Green Park, Reading
by Mapletree, the largest
transaction in 2016.
of total sales were from
institutional funds in the
wake of the referendum
result.
37%
16%
of purchasers were
overseas investors,
equating to £1.13bn
of South East office
transactions.
of purchasers were
local authorities who
acquired 13 south
east offices
totalling £498m.
2016 key investment transactions
Size: 150,000 sq ft
Price (psf) £187
Hemel Hempstead
Oxford
20
22
23
24
25
26
27
M40
Watford
Reading
M4
31
Heathrow
1
2
M2
3
Croydon
11
10
M3
Centrica Global,
Windsor
30
15
14
12
Newbury
10 Hammersmith
Grove
29
Slough
13
4
9
M20
7
6
Maidstone
M23
Gatwick
Size: 121,014 sq ft
Price (psf) £465
Yield: 5.71%
Royal Tunbridge Wells
Purchase price
Price psf
BP
£355,000,000
Oxford Properties
£563,000,000
Tai United Holdings
Brockton Capital
Gatehouse Bank (Tabung Haji)
Henderson
Westgate, Hanger Lane
Galliard Homes
8 Bedford Park, Croydon
Capital Trust
Property
Vendor
Quoting price
Price psf
Size (sq ft)
Yield (%)
First Point, Gatwick
Aberdeen
£18,250,000
£294
62,028
7.37%
Chiswick Green
M&G
£65,000,000
£790
82,307
5.26%
BAE Systems, Christchurch
LaSalle
£21,000,000
£140
150,191
7.19%
Spelthorne Capital
Green Park, Reading
Mapletree
8 Bedford Park
10 Hammersmith Grove
Size: 52,000 sq ft
Price (psf) £469
Yield: 5.21%
Centrica Global, Windsor
Vendor
Size (sq ft)
Yield (%)
£573
620,000
4.09%
£405
1,390,000
6.50%
£103,500,000
£843
122,744
5.25%
£56,250,000
£465
121,014
5.71%
Clearbell
£28,000,000
£187
150,000
-
M&G
£25,200,000
£469
52,000
5.21%
BP International Centre, Sunbury
Size: 620,000 sq ft
Price (psf) £573
Yield: 4.09%
R
DE R
UN FFE
O
R
DE R
UN FFE
O
International Property Consultants
Purchaser
BP International Centre, Sunbury
Size: 62,028 sq ft
Price (psf) £294
Yield: 7.37%
Size: 150,191 sq ft
Price (psf) £140
Yield: 7.19%
The small to mid-size south east markets continue to be
characterised by a constrained office supply due to a lack of
speculative development and the increasing impact of permitted
development. A significant rise in PD developers and PRS funds
has led to substantial erosion of stock in the Greater London
market and other stable residential markets such as Brighton where
local research indicates over 800,000 sq ft has been taken out of
the market due to residential conversion. This has led to significant
rental growth over the last three years which continues to prevail.
The fundamental changes to the structure of these markets means
that lower levels of take-up can still drive rental growth.
The dominant purchasers throughout 2016 were overseas
investors followed by local authorities that accounted for 53% of
total transaction volume throughout the year. For the most part
local authorities bridged the gap in demand left by many of the
institutional and retail funds in the wake of the referendum result.
TO LETresponsible for two
LET SOLD were
Overseas investors and local TO
authorities
of the largest deals throughout 2016; Green Park, Reading (£563m Despite rental growth and availability remaining well below ten-year
acquired by Mapletree) and BP Campus, Sunbury (£355m acquired averages in the majority of south east markets, investors have
by Spelthorne Council).
remained cautious on pricing, even though demand amongst
occupiers targeting sub-20,000 sq ft has been stronger than
In terms of the number of acquisitions, both property companies
sentiment would suggest.
and private/charitable investors were the most active with 28
acquisitions each. As the economic turmoil predicted as a result of
the BREXIT vote did not come to fruition both investor types made
opportunistic acquisitions at discounted levels.
Property
Size: 122,744 sq ft
Price (psf) £843
Yield: 5.25%
First Point, Gatwick
BAE Systems, Christchurch
Institutions, long income funds and overseas investors continue
to look to weather any short term risk by acquiring secure long
income offices. The predicted rise in inflation and the scarcity of
occupiers signing long leases has led to yield compression for
secure, 20 year+, index-linked investments.
5
8
Guildford
Overall, for the first time since 2012 institutions became net
sellers of south east offices. This was largely driven by post EU
referendum retail fund sales and some institutional ‘housekeeping’
with smaller assets being disposed of. This was demonstrated by
Columbia Threadneedle selling 21 south east offices as separate
sales with an average lot size of £7.6m, capitalising on the strong
demand from permitted development developers. However,
institutional funds began returning to the market in Q4 with a
number of institutions bidding for core assets including RLAM’s
acquisition of Braywick Gate, Maidenhead (c.£19m) and Orchard
Street’s acquisition of 1 King Street, Hammersmith (£34.5m).
2016 key deals
28
16
Size: 1,390,000 sq ft
Price (psf) £405
Yield: 6.50%
Competitive bidding tension was evident for permitted development
sales and long income offices particularly with fixed or index linked
uplifts. Permitted development developers continue to increase
their presence in the south east office market with 18 transactions
and over £217m of development acquisitions. Examples include
Quinata’s acquisition of Great West Plaza, Brentford (£30.3m) and
Galliard’s acquisition of Westgate, Hanger Lane (£28m).
M25
18
17
Chiswick Green, Chiswick High Road
Size: 82,307 sq ft
Price (psf) £790
Yield: 5.26%
M11
St Albans
21
19
High Wycombe
Green Park, Reading
Stansted
A1(M)
M1
R
DE R
UN FFE
O
Luton
Westgate, Hangar Lane
South east office transaction volumes for 2016 were £3.05bn,
a 23% decrease on 2015 volumes. In total 138 offices transacted
with an average lots size of £22.1m a fall of 17% on last year’s
average. A fall in volumes was largely expected due to 2015
being the highest year on record (£3.94bn) for south east office
transactions and the EU referendum that slowed down transaction
volumes in Q2 and Q3.
Under offer
2016 SOUTH EAST OFFICES INVESTMENT MARKET
ANNUAL REVIEW
Net intial yield by investment volume 2016
Source: Gerald Eve
Source: Gerald Eve
£58.9m
600
400
200
0
West
London
Clockwise from top left: Centrica Global, Windsor; BAE Systems, Christchurch and 10 Hammersmith Grove
Institutions 2017
Throughout
Institutions
1% 1%
5% 2%
4% 4%
5% 2%
South
0% 0%
Managed
Funds
Managed
Funds
Institutions
continue
We
Institutions
Managed
Funds
Managed
Funds
2% 2%
4% 4%
Private
Equity
Private
Equity
Institutions
compression
for
Institutions
16% 16%
Private
Equity
Private
Equity
Investor
sentiment is expected to improve throughout 2017
as& Leaseback
We see rental growth driving returns in small to mid-size
South
Developer
& Leaseback
Developer
Developer
SaleSale
Developer
commercial property continues
to offer investors a stable and
East markets due to the severe
5% 5% shortage of supply and expect
71% 71%
1%
1%
Overseas
22%
Overseas
22%
attractive yield in comparison to interest rates, gilt yields and
investors to pay close
attention to income yields.
Corporate
Corporate
frothy equity markets. We expect institutional funds to increase
acquisitions for best-in-class assets in core South East markets
We expect that corporate occupiers (50,000 sq ft +) in sectors
and anticipate prime yields to compress from 5.25% down to
exposed to BREXIT will continue to postpone major decision
5.00% by the end of 2017.
making on expansion/relocation plans throughout the year,
however we expect occupational activity to remain robust for
Local authorities are due to continue to acquire assets with
lettings of sub 20,000 sq ft.
assistance from the Public Works Loans Board to promote selfsufficiency as austerity measures continue to curtail funding to
As rents continue to grow in suburban London towns office
council’s across to UK.
capital values are likely to rise and begin to look attractive vs
residential values, which may lead to an increase in small-scale
We see overseas investors and developers remaining active due speculative refurbishment/development going forward.
to the weaker pound and a significant increase in PRS and PD
funds raised over the last 12 months.
VP
<6%
6-7%
7-9%
9-10%
Vendors by investor type 2016
Source: Gerald Eve
Source: Gerald Eve
1.9%
1.9%
Institutions
Institutions
13.0%
13.0%
Property
Companies
Property
Companies
Corporate
Corporate
7.9%
7.9%
7.1%
7.1%
Developer
Developer
>15%
Managed
Funds
Managed
Funds
12.2%
12.2%
Local
Authority
Local
Authority
16.4%
16.4%
1.5%
1.5%
10-15%
2.2%
2.2%
Managed
Funds
Managed
Funds
Private
& Charity
Private
& Charity
6.4%
6.4%
8.7%
8.7%
Private
Equity
Private
Equity
Overseas
Overseas
36.9%
36.9%
Corporate
Corporate
1.2%
1.2%
Developer
Developer
17.2%
17.2%
Institutions
Institutions
31.3%
31.3%
& Leaseback
SaleSale
& Leaseback
15.2%
15.2%
Private
Equity
Private
Equity
12.7%
12.7%
Property
Companies
Property
Companies
0.5%
0.5%
Administration
& Ranks
Administration
& Ranks
4.2%
4.2%
Overseas
Overseas
South East office investment team
Andrew Mears
Partner
Tel. +44 (0)20 7333 6308
Mobile +44 (0)7767 33801
[email protected]
Guy Freeman
Partner
Tel. +44 (0)20 3486 3471
Mobile +44 (0)7796 813141
[email protected]
Charles Boyes
Senior Associate
Tel. +44 (0)20 3486 3472
Mobile +44 (0)7796 813141
[email protected]
Jason Nearchou
Associate
Tel. +44 (0)20 3486 3475
Mobile +44 (0)7704 397381
[email protected]
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
www.geraldeve.com
0
East
Purchasers by investor type 2016
Undisclosed
Undisclosed
we expect that political11%
decisions will
expect robust demand and further yield
11%
19% 19%
toProperty
influence
economics. Despite the uncertainty
surrounding
income-led office investments
with increasing allocations
toCompanies
Property
Companies
Property
Companies
Property
Companies
Property
Companies
Property
Companies
the UK’s
exit
from
the
EU,
modest
GDP
growth
funds
specifically
targeting
index-linked
opportunities,
particularly
6% of 1.4% is
6%
Private
& Charity
Private
& Charity
Private
& Charity
30% 30%
Private
& Charity
Private
& Charity
predicted
by the Bank of England in 2017, however a number
& Charity
as the UK inflation rate is predicted to rise to 2.7%Private
in 2017
Overseas
Developer
Overseas
Overseas
Developer
Overseas
of economists are predicting growth in excess of this figure.
according to the Bank of England forecasts.
Private
Equity
Private
Equity
North
0.2%
0.2%
2017 South East Office Investment Predictions
Managed
Funds
Managed
Funds
Greater Thames
M3
London Valley Corridor
£39.0m
800
£25.9m
1000
£293.2m
£289.3m
£188.1m
200
1200
£85.6m
£972.1m
£516.1m
£736.2m
800
400
1400
£227.5m
1600
1000
600
£ million
£459.2m
1800
£1709.9m
£ million
£506.8m
1200
Transaction by sub-region 2016
The reproduction of the whole or part of this publication is
strictly prohibited without permission from Gerald Eve LLP.
3.3%
3.3%
Private
& Charity
Private
& Charity