Allsop Partners Ed Dunningham, Nick Pemberton, and Chris Room discuss the Central London commercial property investment market, now that we are three quarters through the calendar year, including volumes to date compared with this time last year. They review the key London transactions that highlight the trends in both the City and West End markets, effects the macro environment are having, and run through who has been active in Q3. Stay tuned as Chris and Nick answer the question - “What would you buy if you had £50m to spend on Central London real estate?”
In this episode of Allsop's PropChat, valuation partner Ed Dunningham hosts a discussion with Nick Pemberton and Chris Room experts from the West End and City markets respectively. The conversation begins with a brief review of the market conditions and deal volumes, impact of the economy and potential further interest rate rises and the outlook for the rest of the year.
Listeners can expect expert insights on market trends, challenges, and opportunities in the evolving landscape of commercial property investment.
Follow Allsop and our speakers Ed Dunningham, Nick Pemberton and Chris Room on social media.
Ed Dunningham
Nick Pemberton
Chris Room
Don't forget, if you’ve enjoyed listening, please rate us and consider writing a review.
If you have a question relating to one of our podcasts or have any suggestions of themes you would like us to cover, please email podcasts@allsop.co.uk
The podcast presented here is for general guidance and represents opinions of our teams based on the property market at the time of recording.
All details are correct at time of recording
Ed Dunningham: . [00:00:00] Hello, everybody. Welcome to our latest Allsop, capital markets update. I'm here today with Chris Room from our city office. Hiya. Nick Pemberton from the West End. I'm Ed Dunningham, and we're gonna kick straight off with some of the stats. But before we do that, let me just remind you, six months ago, we were here back in March, April time.
Rates have changed. Sonya swaps, 10-year gilts were probably another 80, 90 basis points more expensive. So we're in a different market, but things carry on. Life carries on. So let's kick off with the stats. Nick, do you wanna start with your thoughts?
Nick Pemberton: Starting on a positive, rents have really moved as well, so in an upwards direction in the quarter.
The West End, we finished the quarter, Q3, at about 1.3 billion of volume, so that takes the year to 3.3 billion of volume. it's running at about two thirds of the long-term average but it's about last-- This time last year was about 3.6, [00:01:00] 3.7 billion. So it's, it's kind of there or thereabouts.
But I think in under 70 deals, so, yeah. And then there's probably about we're tracking about 1.2 billion under offer for hopefully for the rest of the year
Ed Dunningham: Okay, Chris, how are you
Chris Room: Yeah, not massively dissimilar figures, Ed. we were-- the city were about 1.2, , billion so far up to Q3.
So the total for the year will be just over 3 billion, 3.1. That's 20% ahead of last year, so we are slightly ahead. If we
look at what we've got under offer, it's about 1.5 billion under offer, which should take us to pretty much just where we got to last year. But probably a, a lower volume quarter in Q4 if we're, looking at what we envisage will happen before then.
So not wildly dissimilar. And deal number around sort of 60 to 6- 62 we, we're recording at the moment, so 60 to 70 deals so far.
Ed Dunningham: That sounds good. What about key takeaways from this, this last six months then?
Chris Room: I think if you look down the deals that we've tracked certainly for [00:02:00] Q3, it's a little bit of a hotchpotch really.
We've got a few owner-occupier deals. We've got a few deals that are for change of use. So I think we've-- we're, clocking 4 out of the 17 deals, in Q3 with a, with a change of use to away from offices. We've got a mixture of sort of freehold multi-let deals, which are trading in the sort of 7% to 8% territory.
And we've got a number of value add deals as well. So value add deals p- particularly in the core, where people are buying, repositioning assets, taking advantage of improving rents, particularly in the core locations. But the two largest deals of the quarter, one was a, a sale down in Canary Wharf, from Canary Wharf to Brookfield, who are an investor in the group, of One Bank Street, which was 620 million.
And then we've got the sale of Republic, which was, bought by a Japanese data center business. So s- non-conventional large deals really, and they account for probably two, two-thirds of the overall volume.
Ed Dunningham: Okay. And West End, how, about, key deals, key [00:03:00] takeaways?
Nick Pemberton: every, time we do a quarterly deals schedule we try and look at sort of any themes, trends, et cetera.
And I think it's probably, I think in probably 20 years of doing it, it's never been more apparent on this quarter's, , schedule. So-
Predominantly,
deals that have happened are in the core, Mayfair, St. James's, Soho markets. And I think we've got this quite wide bid-ask spread that hasn't really narrowed between buyers' and sellers' expectations.
But where it has narrowed is in the core, where buyers are probably willing to project big rental, growth stories and big rents, which brings the gap much narrower between buyers and sellers. Outside the core, uh, we haven't seen that many transactions at all. Most of the deals have been in the core.
When I say core, I mean locations, you know. So Mayfair, St. James's and, Soho. Interestingly, outside the core markets we've had owner/occupiers buying buildings.
so
I think there's been four owner/occupier deals, [00:04:00] but one in Hammersmith, uh, one in Fitzrovia, which we were involved in. We sold, , a building.
It was a 60,000 square foot block with the idea to increase that floor area to Next PLC for their new headquarters. But Really outside the core investment product that's not owner-occupier-led, it's, it needs to be repriced. So the biggest deal of the quarter or second big-- second biggest deal of the quarter we saw was 123 Victoria Street, which Landsec went out at 15, 16 months ago at 265 mil, which was 6.3, 6.4%.
That's just traded for closer to 8%, 211 million. And I think that 8% is probably reflective of the lot size and a bit of CapEx, but actually
probably also reflective
of,
of investors not willing to put massive bets on that rental growth in that particular building,
I suppose.
Is that No, it's freehold.
It's freehold. Yeah.
Chris Room: Okay. [00:05:00] core
Nick Pemberton: rents are going great guns. We're about to see, pretty close to seeing £300 a foot, and we can come onto that. But outside, outside the core, there needs to be some yield to reflect, CapEx and voids and, really to get to a, a relatively attractive running yield if we're not getting the rental growth and yield compression that we are in the core.
Chris Room: Feels like your market's a bit more defined this quarter than ours, which feels- Yeah ... a little bit more sporadic.
Nick Pemberton: Yeah.
Ed Dunningham: And who are the buyers and sellers in the West End at the moment?
Nick Pemberton: In the West End, we've continued to see, uh, Asia money selling, albeit that was slightly-- So 1 St.
James's Square, uh, is a great example of that building which we, were involved in buying in, in 2020, the end of COVID. That's just traded for 290-plus million. Hong Kong money selling. And we've generally seen sort of further, Far Eastern money selling and, a couple of UK funds, one which we were involved in with, with Schroders.
But then really on the, [00:06:00] buy side, it's been, a lot of private money, high net worth, wealthy families a lot of European, European money.
Ed Dunningham: How about the city?
Chris Room: Oh, I knew you were gonna ask me that. It, it has been a real mix. I'm, I'm looking down a list here. I mean, the City of London have continued to sell.
I mean, the Worship Street estate was one of the largest deals of the, of the quarter. 70 odd million pounds over, over 10, 11 buildings. The REITs as well, British Land, Landsec continue , to try and I guess d- divest from, their office portfolios. And, you know, we've still got institutions selling their smaller buildings, , particularly in the city.
The buyers predominantly European, Israeli. We've still got private equity money. There are owner occupiers that we've talked about earlier, uh, that are propping up some of the smaller transactions and some of the bigger ones. It's a bit all over really. But I think, as with the West End, I would say typically Asian, uh, the Asian market is more in sales mode than buy mode, and the institutions are a little bit of both.
But we're only really [00:07:00] seeing the institutions looking at Really, really, really good quality assets in the city. your freehold, very core locations, multi-let, minimal CapEx, and we're not really in the market where we've got too many people that wanna sell those assets.
Ed Dunningham: sure. And it sounds like there's some quite good value in, in some of the fringe areas.
the Worship Street deal.
Chris Room: Yeah, the Worship Street estate, we quite like that. It's a generational deal really, and I think, the, the City of London obviously shy in the fact they want to raise, raise some money for, various projects. And this was a collection of buildings they'd sort of amassed over time hadn't quite completed the, block.
But, you know, there was very, very competitive bidding for that. The 75 odd million that was, that was paid, 74, 75 million reflected a capital value in the 300s. Which as we all know for, real estate, and particularly these, these blocks where you've got a mixture of income, some value-add buildings some with, with a little bit more income than others, it, it gives, you a lot of scope to play with.
So we [00:08:00] saw a lot of more flexible capital getting quite excited about that, private equity money and families as well. You know, it was ultimately bought by, Frasers Group, Mike Ashley and I'm sure he'll do pretty well with it, I imagine.
Ed Dunningham: Yeah,
no doubt. No doubt. But in the core, it's expensive still.
It,
Chris Room: feels that way, yeah.. you know, we're hearing prime yields. You know, CBO recently moved their prime yield out 5.75%, which is a quite a big statement. we're, we're trying to work out what that means for, buildings in relation to the rental. So, you know, rent's going up and up and up in the city, and you know, we're now hearing £130, £140 a foot in, areas around Liverpool Street Station.
And you think, you know,
what, what does that mean in relation , to the yield? 'Cause I guess yields in some ways will need to come in to compensate for those rents on other buildings. So there'll be a reversionary piece as well that will come into it. But yeah, the core is-- I, I think for, for value add in the right locations, it's very interesting.
When you look at some of the deals like 125 Finsbury Pavement, it's been on the market for quite a long time. [00:09:00] Price went down a little bit, and that's been bought by an Israeli group just over £400 a foot, and that building is 50,000 square foot, very close to Moorgate Station, two-minute walk to Moorgate Station, and ripe for a repositioning.
And
I think they
should do quite well with that really. the rental tone there could be quite strong.
Ed Dunningham: But I presume it's gonna cost a fair bit to, to put that building into shape.
Chris Room: Yeah. the problem at the moment is the costs can- Yeah ... costs are gonna be pretty high. But- Yeah ... at the same time, if you're getting your rents up at, should in theory in that location be achieving over 100 pounds a foot really, certainly on the best space, and you're capitalizing that at a yield, you'll see that back if you're going in at 400 pounds a foot.
You should do.
Nick Pemberton: But I guess there's been some vendor repricing on that asset, has there? It's been... Did you say it's been on the
Chris Room: not so much. Yeah. It was, it came to market a couple of years ago, and, Yeah ... it's been out for a while. But again, I was always quite surprised how it didn't get bought a little sooner really.
It's a mid-terrace building, which probably didn't help. Not the best outlook to the rear, but fundamentally as an occupier, [00:10:00] being that close to Crossrail and on a nice pitch along Moorgate, Finsbury Pavement, it's, it's a pretty good spot.
Ed Dunningham: Yeah. Yeah. And in the West End, the core, the real prime stuff is, still strong as ever.
I suppose it's real trophy territory there.
Nick Pemberton: I think, yeah, I think trophy's a funny term because sort of five, 10 years ago, you'd have all these family offices buying because it was in St James's Square. But now I think sophisticated investors, they, need to see return for their money, and they're probably more patient capital kind of thing not needing to see sort of mega returns.
But at the same time, the stuff that's been bought has generally got exceptional rental growth prospects. You know, you look at, the actual metrics of the West End into just moving to the occupier side in terms of the, the best, the best buildings in the core locations. Grosvenor and Mitsui on their South Molton Triangle space, I think that's more than 50% committed and that the, you know, there's chatter around rents 270, 280, [00:11:00] 290 a foot.
And these, this is
150,000 square feet's worth of space, so it's not like a 2,000 floor with a terrace. It's, this is big bits of space where, you know, we're almost nudging 300 pounds a foot. And so I the trophy, I think we've said for a long time, location, location, location.
Buy the best, uh, location you can afford. And I think there's a real opportunity at the moment for maybe some of the what you would have called trophy hunters, but the generational wealth that's buying for long term. One of the reasons there aren't as, more deals in the West End is 'cause people, once they've bought buildings often don't wanna sell them.
And I think we're, we're, there's a really good opportunity at the moment for this, some of this family wealth, to have a limited competition, and these, these families are multi-invested, multi-banks. They've got stuff everywhere, and it's, and it's, we often focus in on the why do they wanna buy this building?
But they, you know, they've got a portfolio of all sorts of things, and it's a diversification. And if you're gonna diversify into real [00:12:00] estate, probably London as a geography and prime central, freehold. there's only one, I think one stroke two deals this quarter that were leasehold out of, mid-20s number. So it's buying the best you can. but actually we're seeing really strong rental performance on a lot of those assets.
Chris Room: Do you think you're gonna see that in rent reviews, though?
Nick Pemberton: It's a good question. It's a big question, I suppose. Y- we're often seeing big buildings that might be single let, let on individual floors, and I think, um, we're also starting to see, you know, CPI cap in color on the reviews.
But yeah, it's a, it's a fair point. It's all very well buying a building that's recently let, but, you know, performance will come at year five and um, you've
Chris Room: prove- Gotta hope for some uplift. Yeah ... you
Nick Pemberton: gotta prove some big uplift.
Chris Room: Yeah.
Ed Dunningham: Interesting.
But a lot of these leases, we're seeing stuff in St James's that we're valuing where there is rental growth coming through at review and, Yeah.
Yeah ... a lot of these occupiers, even on the shorter leases, they want to renew and there's- opportunity for uplift. So- [00:13:00] Yeah ... it's an incredible
Nick Pemberton: seeing these 4% yields because, we, you look where bond yields are, Y- you are implying quite a lot of rental growth in paying 4% for something really
Ed Dunningham: So 300 pounds a foot is coming down the tracks, do you think?
Nick Pemberton: I think so. interestingly, we've already got serviced offices, offering all-in services sometimes where the rent is coming back to not farther, far from that level.
But, you know, these are big bits of floor space and we're, you know, we're running out of grade A quality supply. One interesting thing, you know, talking to our, leasing team is we're starting-- What we are seeing with the cost of moving and the cost of fit-out, we're seeing a lot of occupiers simply staying put and renegotiating.
Ed Dunningham: Yeah.
Nick Pemberton: You know, I think Spotify on Strand, have had quite an extensive search, and they've, , decided to stay put and renegotiate because simply 'cause the s-the space they want isn't there and the, the rent they want it for maybe isn't there.
Ed Dunningham: Yeah.
There's
Chris Room: value in that though, isn't there? Buying a building where there's a tenant that's been there for a long [00:14:00] time. Yeah. And they're the majority tenant or they might be, they have a number of floors in the building and going in there and wrapping your arms around them, offering them a good deal.
we'll invest in the building, we'll bring it up to spec, but we want your rent to increase in line. And actually, you could probably do some quite good business with- Yeah ... certain buildings out there at the moment by doing that.
Ed Dunningham: So the occupational s- piece in the City, similar dynamic but slightly lower levels of rent?
Chris Room: Yeah. I was, think- chuckling to myself there some of the rents that Nick's quoting are some of our capital values. So- Sorry,
Ed Dunningham: That's very true,
Chris Room: but but yeah, I, I, I think, you know, now the towers, we're seeing 150, 160 and then, you know, you're looking around, like I said before, like Liverpool Street, seeing the big Jane Street deal and the press, which was well into the 100s, over 130 on best is w- is the talk.
But, you know, I, I think when there is then gonna be space for some of these tenants that have been in buildings for a while, perhaps paying 40, 50 quid a foot to then up to, say, 60, 70, 80, and the landlord will really benefit from, being able to benchmark that. It's [00:15:00] gonna have an impact as well, as we, as we know, on places like Shoreditch and probably Clerkenwell, where those markets have, suffered occupationally for the last few years.
And as a result, the investment market's been really, really hard. Uh, you know, yields have had to really move out. There's a nervousness around going into, you know, north of the Clerkenwell Road and then, then, you know, up into Shoreditch. But I think now with, with, the areas around Broadgate filling up a lack of space available, not everyone wants to pay £130 a foot.
I think it's gonna be really good. I think next year we'll see more interest in Shoreditch generally, I think, and pr- and probably Clerkenwell with r- with, respect to Farringdon. and there being a lack of space there, and that should filter into the investment market. I think that's where there's a real opportunity at the moment.
Ed Dunningham: And Canary Wharf as well. That's, that seems to be back on its feet again.
I love
Chris Room: about Canary Wharf, Ed. Canary Wharf has seen a, a huge amount of stuff happening this year And you see, you know, you go down, I was taking [00:16:00] note of how much square foot has been impacted by... You look at what Citi are doing, what JP Morgan are doing, PwC.
There's about four million square feet that has had a positive impact this year in terms of commitment from j- you know, large, large organization. Barclays buying their own HQ. The PwC deal we're, , we're hearing is,, is so high it's gonna shift the whole rental tone of Canary Wharf.
It's effectively gonna be doubled since the last cycle. and again, it's because in the city there's just not enough, space, and it's, it's, it's actually enabling these corporates to go and expand into new space down in the Wharf or good quality space. And it's gonna have a real impact down there.
I think, again, we're gonna start seeing the investment market liven up in, in the Wharf a little bit. YY that's been vacant for quite a while has just had Deutsche take loads of space. They've got the last two floors on the market up the rent to £75 a foot. And yeah, I think it's gonna be quite an exciting time for the Wharf.
Nick Pemberton: Do you know what's really interesting about that is, we've been doing these podcasts for a couple of years, every six months. If I'd have said to you that [00:17:00] 18 months ago, you wouldn't have said, "I love talking about Canary Wharf." And there was this whole perce-- it was. I mean, there was this whole perception everyone's leaving and, oh my God, there's loads of gray space and, no one really wants to be there.
And, and I think Canary Wharf Group have massively stepped up I think a lot of placemaking's gone on and a lot of occupiers have realized that actually if we're all there together, then, It's gonna be a, a great environment to work in and um, it's amazing how quickly that's changed in probably 12, 18 months really.
Section.
Chris Room: Yeah. Yeah. It's the padel courts as well down there as well, Nick. That's the thing. It does help quite a lot.
Nick Pemberton: Yeah. I think if we all um, could have a side, business, it'd be running paddle courts, wouldn't it? The amount- team, hired them for in, in Vauxhall recently.
I think th- they're on a site that's gonna be a tower site, and I think we worked out that the paddle courts on the tower site are probably worth more than the tower
Chris Room: But it's a buzz down there. you walk off the Crossrail station and you go down there at lunchtime, you can barely move. It, is, there are a lot of people down there. [00:18:00] And, whilst it hasn't had that I guess that, that pull and that attraction for the last few years, I think now we're starting to see, certainly like
Ed Dunningham: that
Chris Room: with the summer and, the amenity they've got going on down there.
It's a place, and it's very easy to get to as well, with Crossrail.
Ed Dunningham: That's good to
Nick Pemberton: So on a s- on a smaller scale if you'd have asked 18 months ago, I think a lot of people would say, "Yeah, we really like Paddington and Canary Wharf's having a bit of a bother." And then we've, we've seen Visa shift their HQ from, Paddington to Canary Wharf.
And Paddington at the moment feels just a bit sort of, "Uh," But quite a, a few sort of older buildings or getting, buildings that are getting on a bit. But actually, I think we'll be sitting here in 12, 18 months talking about Paddington in the same way that now you're talking about Canary Wharf.
It's literally right on top of Crossrail. Yeah. Helical are building a big, building, which they'll probably smash the rents through on. And um, as we run out of space in the core, if you're a big floor space occupier, what, are your options? [00:19:00] It's probably, you know, it's Victoria maybe a bit of King's Cross, although you're now competing with, the AI boom.
Yeah. with the likes of Google, we're recording this in King's Cross, and the likes of, uh, Google opening their center, Microsoft moving in, OpenAI Anthropic. they are the new what was going to be life sciences and that, and as a result, we're seeing, Rich Townsend in our leasing, team said that we're, they're regularly starting to see requirements come around the market saying King's Cross only or King's Cross and Euston only.
Which,
Ed Dunningham: is,
Nick Pemberton: quite,
interesting,
Ed Dunningham: It's
Chris Room: interesting shift, isn't it?
Yeah. I do, yeah, I do feel the same about places like Stratford as well. I think, the, the, office market is filling up, but certainly from an educational perspective. And there, there's not gonna be anything built there. Yeah. for a discounted rent, and you can be 15 minutes into Liverpool Street, if that.
It's quicker than that so yeah.
Ed Dunningham: Let's see what happens. So the operational markets are in good health. There's plenty going on. We're
seeing growth. I think it's,
Nick Pemberton: [00:20:00] sele- yeah, selectively, but yes. Yeah, by
Ed Dunningham: and
large.
be
Chris Room: ripple effect, I think, off
Ed Dunningham: back of it. Yeah.
Chris Room: So if
Ed Dunningham: you had Nick, 50 million pounds to spend,
where
would you go? What would you do?
Nick Pemberton: Ed.
Chris Room: No,
Ed Dunningham: No, I'm gonna have to, restrict it to real estate in London.
Nick Pemberton: to real estate. So it's, an interesting one, isn't it? Do you go, super prime, buy a building in St. James's Square at £3,500 a foot and 4% buy it for the long term? Or do you, buy a lot of yield buy something up King's Cross way that's, that's, you know, multi-let and a bit more risky?
I think, um- Not dodging the question. The last three or four times I've asked- answered this question, it's always been buy St James's Square or buy a garden square. But actually, interestingly, this time round, I think um, I like retail at the moment. Decent quality retail, partly because if you've got a multi-let office building, every time you get a floor back, you might have some CapEx.
Whereas [00:21:00] retail, you don't have that spend and if you look just around the sort of Oxford Street, area which, really running from the end of Tottenham Court Road to the, to Marble Arch , the mayor's sort of hoiked off, uh, Westminster and Camden's sort of um, stranglehold over W- over Oxford Street, and they've set up a development corporation, much like they did for the Olympics, , to run the regeneration of Oxford Street, pedestrianisation of it.
And actually, the street, if you look at the map of it, you know, it runs to the south, it sort of r- hits, let's say, Great Marlborough Street and down to sort of Denmark Street and the outer net at the, at the Tottenham Court Road end of it. So, it goes a couple of streets down, a couple of streets up, and I think there's going to be some major, major regeneration in that sort of Oxford Street patch.
So, if I had £50 million to spend, I'd probably buy Oxford Street East. I've probably missed half the, peak to trough rental growth. It's now on the way, a long way back up again. [00:22:00] But actually, that's probably-
Chris Room: Can't go wrong.
Ed Dunningham: So Oxford Street retail's on your tip list.
Nick Pemberton: Yeah, so not just Oxford Street retail, the band above and below, a couple of streets, two, three streets either side of of the whole Oxford Street regeneration, so offices included within that, yeah
Ed Dunningham: And Chris, what about the City?
Chris Room: got a wonderful sale around 50 million on Cannon Street at the moment there that I'd buy in a heartbeat. But, aside from that, I think, I-- the city has always been driven by low cat vals, and I think, we talked about the Worship Street estate, before.
It's a little more than 50 million, but I think if you're buying into that part of town, and we've talked about Shoreditch and the way that occupational market will change, this is very much South Shoreditch, close to Crossrail. I think that part of town is gonna go through Drive in rents over the next probably year, to two years really, I think, off the back of what's happening around, uh, around Liverpool Street and, Broadgate estate, et cetera.
So I, I, think that's a, that's an amazing place to, put some money. It's a [00:23:00] generational buy, and I don't think buying in at that, that cat val you can go too far wrong. I do think there's a case for, and we've talked about this before as well, Nick, buying buildings where all the M&E is
Ed Dunningham: Yeah.
Chris Room: all the CapEx has been spent, and if you can, buy something off a sensible yield at that price or even a sensible cat val at that price and take on a bit of leasing risk, but deliver the right product Again, you're gonna have 10, 15 years of life in a building in a good location.
So I think it's very deal by deal, but I do-- I'm excited about Shoreditch and Clerkenwell, which are areas that we've always had a lot going on in as a city team. Probably coming a little bit more into focus next year and hopefully a few more buyers looking in those markets for, the fact that the occupational market should be a bit stronger there.
Nick Pemberton: I think it's a very good point you make about, at the moment taking leasing and tenant risk rather than CapEx, , build cost risk, et cetera, and, you know, the time and energy that that takes versus more than just a phone call. But, you know, going [00:24:00] and engaging with an occupier and saying, "Right, okay,- I've bought this building off these metrics.
This is what I can afford to give you." But have some confidence that the default position for a lot of these occupiers, if it's a good enough building, is that we really wanna stay put rather than move
Chris Room: I think people are moving away, unfortunately, from, development. You know, there's so many re- and it's not just, it's not just the build, it's the planning.
You know, the planning and how long things take. And I think to, to see more of that, we're gonna need to see a real relaxation and change in the policy or streamlining that policy to encourage people to actually wanna build. It's not just the cost, it's the time which hurts the, hurts the cash flow even more.
That's the real issue. 'Cause at the moment, that's where you're getting the highest rents in the city. If you can build a tower or something of a real quality, that's where you will let
Ed Dunningham: the thing so easily. people
Chris Room: don't wanna take on those, those risks.
Nick Pemberton: I think in the West End is, the two most hotly contested deals were Savile Row Police Station, which has just traded for just over 100 million and was bought by Perodio family, I think they're called, behind [00:25:00] Perenco.
They own their own building in Hanover Square already. Mm. Uh, but you know, that's a major, scheme delivering very high quality product. But the, probably the most conte- hotly contested was 1 St James's Square where- Mm ... you know, there's a big roster of bidders.
eight bidders over the sort of 250, 260 mil, and that is a back to frame and extension major scheme. Uh, you know, to get to the 291 that the Czech business who, the guy behind the lottery they, outbid other parties including one of our clients, but
Ed Dunningham: What
Chris Room: of rents are you getting then there?
Nick Pemberton: so I think you're g- to be able to make a development profit and buy that building for 291 million, w- you're gonna have to be exiting at y- 250 to 300 pounds a foot. But interestingly, you're gonna have to be exiting at probably 4%. So- that's uncharted territory in terms of you're delivering 125, 130,000 square foot building and [00:26:00] exiting at somewhere between 6 and 700 million.
Ed Dunningham: or maybe
Chris Room: it's a 5%, but it's 350 pounds
Nick Pemberton: Yeah. And that, that probably is, that's, that is what's happened to quite a few- The rents are fast. Yeah ... developments in the last few years. People who've made decent returns, they've, probably, they've projected yield compression and it's gone the other way, but they've projected some rental growth and it's absolutely smashed it,
Yeah.
But yeah, I g- I, get that it's hard to,
It's hard to find those buildings and it's hard to, it's hard to do development at the
Ed Dunningham: Whichever way you look, there's strong competition for those buildings, aren't there? Yeah. Really is. Yeah.
So to summarize where do we see things over the next six months headed,
Chris Room: Well, I, I, think it sounds like a, bit of a cop-out of an answer, but I think, I think it will be more of the same in terms of the deals we've got under offer.
You know, there's a, decent chunk for Q4. I think a lot of those should go through. I, I think, as we talked about prime yields are coming under a little bit of pressure. We-- to see what the budget brings in October, which could impact things either [00:27:00] way as it has done in previous years.
So I don't wanna
Ed Dunningham: second guess,
Chris Room: but if it's, a sort of a, a relatively boring budget, then perhaps maybe we will continue to see things as they are for a little bit. I, think we do need some wider macro pieces to settle prior to us underwriting, being a little bit more confident, having a bit more confidence in the market, because at the moment it does feel like we're in quite a steady,
period.
I don't know about you, Nick, but...
Nick Pemberton: yeah, I think the co- the core market is the bit that's held up in our market. I'd like to see some more deals transactions outside those Mayfair, St James's Soho markets that aren't owner-occupier deals. I think for that we need to see a bit of repricing on, some non-core markets.
Victoria Street had been a good example of nearly 8%, albeit as I said before, it's lot size. It's a big lot size plus 200 million. So maybe, maybe if we can see a bit more price discovery and a bit more um, valuations,[00:28:00]
Chris Room: sort
Nick Pemberton: market a bit more and then, we might see some more volume actually.
But I think just as a, as an aside, you know, going out for dinner the other night and, and it took me four restaurants to find somewhere to eat, and London still seems busy. And you sometimes forget when you talk to, international investors and you go outside the region to chat to people, that London is very much still London, and it's still probably top of the list from high net worths.
There's, you know, there's a doubling of ultra-high-net-worth every sort of seven or eight years and, you know, as we get some volatility in stock markets, et cetera, as part of a balanced portfolio, hard assets are gonna be really important to particularly high net worth investors, and we're already seeing that in this market, and it's a great time to try and pick something up.
If there's a bit of uncertainty around the market but you're a long-term investor, you're bidding against one or two others rather than 15 others and yeah.
Ed Dunningham: It still
Chris Room: feel like though it's [00:29:00] structural reasons to sell rather than say the, pressure from the banks though. Yeah. You know, which, which obviously release a little bit more stock into the market.
It feels like, you know, they're perhaps sort of
You know, not
Putting as much pressure as they perhaps could do because of what's happening on the macro level. I
Ed Dunningham: today. Yeah. the macro level is tricky, isn't it?
And, the, base rate, there probably will be an increase. I think that's baked into people's thinking. The, the commercial rates are, seeing that. You know, there's a lot of volatility in terms of where those sort of five-year swaps, the 10-year gilts are, are pricing, and the number of factors affecting that.
But I think, you know, if, if there's a, a resolution to the war in the Middle East and some of these things start to calm down, but we-- you just can't tell, can
Nick Pemberton: you?
Ed Dunningham: No. No. There's so much volatility, and, business seems to be cracking on in any event. it's the occupational piece that's driving it, clearly.
Yeah.
Chris Room: Yeah.
Ed Dunningham: Thanks for listening and um, see you next time.
Thank
Chris Room: you. Thanks, Ed. Thanks, Ed.