More on British Land's Paddington Central deal

UK REIT British Land has acquired the majority of the Paddington Central mixed-use scheme in London's West End.

The acquisition, totalling £470 mln (€550 mln), consists of £400 mln paid for income-generating assets, reflecting a net initial yield of 5.3% on expiry of rent frees, and a further £70 mln for the development properties.

Paddington Central is a 114,800 m2 office-led, mixed use estate close to Paddington station in London’s West End.

Vendors Aviva Investors and co-owners Avestus, Liquid Realty, Henderson and Equitable Life are selling their entire interest in the PaddingtonCentral development consisting of 3 Sheldon Square, Two Kingdom Street, a 206 bedroom Novotel Hotel together with the consented schemes for 4 and 5 Kingdom Street.

The deal is British Land's most significant acquisition since the £493 mln equity placing in March, when the UK REIT raised nearly £1 bn via a share placement and the sale of the Ropemaker Place office block in the City of London.

British Land CEO Chris Grigg said Paddington Central was an investment which played to the company’s asset management and development strengths. ‘It is in line with our strategy of increasing exposure to London and replenishing the development pipeline, and one we expect to generate strong returns.’ British Land's London office business is over £4 bn.

Aviva Investors acquired its interest in the Paddington derelict railway goods yard in 2000 and has since worked in partnership with Development Securities to create an office-led, mixed-use development on the 4.5-hectare site.

'The sale allows us to crystallise these development profits and provides funds for our ongoing central London development pipeline,' said Richard Jones, managing director of Aviva Investors.

CBRE has acted as strategic advisors on the site since inception together with Dentons. Both acted for the vendors.

Paddington Central comprises seven separate modern buildings, and a retail and leisure cluster. The area is served by Paddington station, a London rail and tube interchange which will soon benefit from the opening of the new Hammersmith & City Line station in 2014 and the Crossrail east-west train line in 2018.

British Land expects the Crossrail will boost real estate prices in the area. 'At Paddington Central, there is significant future opportunity to drive returns through more proactive management of the existing properties including letting the remaining vacant space,' British Land said. 'The current office rent averages £49.50 per sq ft, representing an attractive offer relative to the West End.'

Once fully let, the PaddingtonCentral complex will deliver net yields of 6.2%, it added.

British Land has a history of developing and managing London office-led estates, including in recent years Regent’s Place in the West End and Broadgate in the City.

The acquisition involves three of the existing buildings offering 57,000 m2 of income generating properties which are occupied by tenants including AstraZeneca, Nokia, Statoil and Accor. The average lease length is 10.7 years and occupancy stands at 91%.

In addition, British Land has bought 40,000 m2 of development potential, which on completion in 2018 will increase the size of the estate to almost 150,000 m2. The development sites of 4 and 5 Kingdom Street have been purchased and are expected to involve a development cost of £180 mln.