M&G has made a second London office acquisition for the European real estate mandate awarded by an unnamed Asian investor last year.
The 73,000sqft Saffron House in Farringdon was bought for £78.3m (€91.9m) as part of the mandate’s value-add strategy.
The deal follows the purchase of Fleet Place House, another office building in the same area of the City of London, for £111.7m in October.
Fleet Place House was the first value-add UK real estate investment made by the Asian investor and kicked off the mandate to invest in large assets across Europe.
London-headquartered M&G has traditionally been associated with core real estate, but in recent years has moved more into value-add investments, often looking to take advantage of pricing dislocations in the market due to Brexit uncertainty.
M&G said the City of London had not seen the same level of yield compression experienced in other major European office markets, such Paris, Milan and in Germany.
“With already limited levels of office supply further restricted by the pandemic, highly accessible central business districts are likely to prove more resilient moving forward,” the company said.
“This indicates a positive outlook for rental growth over the medium term, especially for sub-markets such as Farringdon, which appeals to a broad range of occupiers from the legal, financial and creative sectors, due to its connectivity and amenities.”
Saffron House was modernised in 2019, but M&G plans to the refurbish its vacant lower ground floor, improving the light and providing direct access from the street.
Paul Crosbie, who leads M&G’s UK value-add initiatives, said: “Central London’s large, liquid market and deep tenant base will continue to appeal to a diverse range of occupiers.
“From a cyclical perspective, the supply of good quality office space remains restricted, particularly for buildings with character in these dynamic, sought-after sub-markets.
“It is these combined factors which provide us with the confidence to take income risk in these low-vacancy markets, which in turn offers our investors a compelling opportunity to capture value-add returns.”
He added: “The effects of the pandemic have underlined the importance of future-proofed office accommodation – ensuring a safe workplace with health and wellbeing amenities to welcome back and retain staff.
“In our view, the physical office will remain central to workplace strategies, albeit with occupiers being more discerning with regards to location and quality.”
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