The London investment market has been given a further post-lockdown lift through the sale of an Aldgate development site with permission for a 14-storey office.
Slovakia’s JTRE triumphed over bidders such as Lincoln Property, Nuveen and Great Portland Estates to acquire 60 Aldgate, EC3, from 4C Hotels and Transport for London.
It is understood to have paid more than the £45m guide price, which will be welcome news to investment professionals keenly watching the prices that sellers are able to achieve as activity picks up.
Agencies including CBRE and Savills have pointed to an uptick in investment activity, both in the UK and elsewhere in Europe, as lockdown restrictions have eased.
Many expect a widening gulf between prime assets and those for which buyers can negotiate a discount as fallout from the pandemic continues.
Leona Ahmed, head of London at law firm Addleshaw Goddard, compared the current situation to the aftermath of the Brexit referendum in 2016.
“After the Brexit vote there was a window for people under offer or in exclusivity to reprice deals, and we have seen that happen again now with Covid, with agreed deals being repriced because of the level of uncertainty,” she said.
“If there is repricing on deals that have gone live during Covid, the question is whether it’s structural or building/vendor-specific. Our view is it’s the latter. For good assets with good tenants, vendors are not expecting to adjust pricing – there is still huge demand for those buildings, and an undersupply, especially in the London market. But money is cautious and buyers will be looking for bargains if they can be had.”
Some believe the second half of the year is likely to be a buyer’s market. Duncan Owen, global head of real estate at Schroders, said a fall in values is “inevitable”, having previously suggested that any vendors trying to sell assets at their December valuations must be “smoking dope”.
“It will be a 12-18 month repricing, triggered by people who have what I call distress with a little ‘d’ – they want to sell but they’re beginning to admit that they can’t get the price they once wanted,” Owen said.
“Markets are down 10-15% on average. We’re not seeing that fully in advice [from agents and brokers] yet, but it’s coming.”
Recent transactions suggest some vendors are settling for lower price tags or casting the net wider for buyers, although agents and investors alike caution against drawing too many conclusions from individual deals.
Meyer Bergman has sold 103 Mount Street, W1, for less than £80m to Trinova Real Estate and Chile-based Stars REI, having paid £81m for the property in 2015.
Nuveen marketed 1 New Oxford Street, W1, for £180m in February and sold it this month to Singapore’s Sun Venture for around £174m.
And a wider marketing push is taking place for 16-17 Connaught Place, W2, with earlier individual discussions with potential buyers understood to have faltered on valuation. However, Peter Sartogo, managing partner at owner GWM Group, told EG the asking price remains £130m-plus and that more than 20 possible buyers are now in due diligence.
Tyler Goodwin, chief executive of Seaforth Land, said: “It’s going to continue to be a buyer’s market until there is more clarity on the debt side and people have more certainty about how Covid-19 is going to impact the market.
“There is a lot of capital waiting on the sidelines managing what they have. There aren’t many saying ‘we’re a buyer’ and with fewer buyers in the market, investors are in a better position to negotiate.”
Other investors are more hopeful of values holding up.
Mark Ebbinghaus, chief executive of ARA Europe, said he has yet to see movement
in pricing for core offices in London, but that core-plus and value-add buyers
and sellers are further apart. In 12-18 months’ time “there may be some
weakening in prices depending on what the economic data does”, he said.