The record-breaking Walkie Talkie deal at end-July by a Hong Kong oyster sauce company followed a bumper first half for the London office investment market and more trophy transactions are on the way despite Brexit, according to adviser Savills.
Lee Kum Kee (LKK Health Products Group), acting through its wholly owned subsidiary Infinitus Property Investment, acquired the Walkie Talkie tower at 20 Fenchurch Street from UK REIT Landsec and Canary Wharf Group for £1.28 bn (€1.4 bn), making it the largest office deal ever in the UK.
The deal followed a bumper first half for London’s City district which saw Asian investors capture half of the £5 bn (€5.5 bn) invested over the six-month period, Savills data shows. The sale of the Walkie Talkie came four months after Hong Kong-listed CC Land acquired the Leadenhall Building, known as the Cheesegrater, for €1.3 bn.
The strong Asian appetite for London assets shows pricing in Central London still looks attractive in relative terms for Asian investors, especially following the depreciation of sterling after the Brexit vote. Market experts say the investment flows suggest that overseas investors are comfortable about prospects for London as a centre for business and finance once the UK leaves the EU.
Interestingly, while Asian investors were the most active in the London City market in H1, European players struck the biggest deals. Although European investors accounted for only 25% of trading volumes over the period, their average deal size was £205 mln, compared with an average deal size of £147 mln for Asian transactions.
The two largest transactions in Q2 involved German investors, with Cannon Place going to Deka Immobilien for £485 mln (€546 mln) and 2&3 Bankside being sold to Deutsche Asset Management for £310 mln (€349 mln), reflecting a yield of 5.01%.
UK investors were responsible for 16% of H1 volumes, while activity from both US and Middle Eastern buyers was relatively muted at just a 4% share each.
The first-half investment total for the City marks a 17% increase on the 2016 figure and encompassed 64 deals with an average lot size of £77.8 mln. Demand for trophy assets was strong, with the 10 largest transactions totalling £3.4 bn, compared with £3.1 bn for the 10 largest deals carried out across the whole of 2016.
With more trophy assets expected to be traded in the second half of the year, Savills says total investment in 2017 will almost certainly surpass 2016. ‘We expect the momentum seen in the first six months of the year to continue into the second half, with 2017 investment volumes overtaking 2016,’ commented Felix Rabeneck, director in the City investment team at Savills.
Savills prime City yield remains unchanged at 4%. The spread between London's City and West End districts is 75 bps with the West End prime yield currently at 3.25%.
