SOUTH EAST OFFICE INVESTMENT BULLETIN - Q3 2020 - geraldeve.com - Gerald Eve
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SOUTH EAST OFFICE INVESTMENT BULLETIN Q3 2020 geraldeve.com
Q3 2020 BY NUMBERS
£332.69m
South East Office Quarterly Investment Volumes
Source: Gerald Eve
£ million of south east offices transacted in Q3 2020
2,500 (+44% increase on Q2 2020)
£1,552m Fraser Property Potfolio
2,000
11 approx. £782m
deals completed of south east offices
throughout Q3 2020 under offer or exchanged
£1,037m Chiswick Park
1,500
£1254m
£441m £1.572bn
£718m Green Park
£1,166m
£1,146m
£1,117m
£1,097m
1,000
£909m Croxley Park
£1,024m
£703m £988m
£876m
£867m
£861m
£873m
£793m
transacted so far this
£770m
of sales launched in Q3
£725m
£713m
£632m
year. We anticipate 2020
£615m
£600m
500
£559m
£476m
investment volumes to
£470m
£452m
£438m
total approx. £2.5bn.
£220m
£328m
£295m
£327m
£333m
£193m
£231m
£89m
0
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Average quarterly transaction volume
Q3 2020 key investment transactions 2
Cambridge
4
Bourne Business Park, 1 Building 3000, Hillswood 5
Weybridge Drive, Chertsey
Price £80.53m (£437 psf) Price £23m (£325 psf)
NIY 6.75% Luton NIY 7.07%
Purchaser Straits Real Estate Purchaser Kamco Invest
Vendor LaSalle Investment M1 A1(M) Stansted and M7
Management Oxford Hemel Hempstead
M11
Vendor Aviva
7
21 22
9
20 23 24 27
26
High Wycombe 25
One Cambridge Square, 2 Building D, Bartley Wood 6
19
AD
18
M25
GE ISIN
Cambridge Buisness Park, Hook
V
17
M40 Watford 28
G
29
Price £45m (£451 psf) Size 49,240 sq ft
16
NIY n/a 15
9 30
Price £8.95m (£182 psf)
Reading 31
Purchaser Schroders NIY 8.70%
M4
13
14
Heathrow 1
2
Vendor Brookgate and Newbury
12
1 3
M2
Vendor Fprop
Network Rail 5
11
8 M20 Available
6
4
10
9
3
5
9
8 7 6
Keats House, Guildford Florey House and
3 M3
7
AD
M23
GE ISIN
Leatherhead John Eccles House,
V
Gatwick
The Oxford Science Park
G
Price £19.3m (£383 psf)
NIY 6.80% Royal Tunbridge Wells Size 44,587 sq ft
Purchaser Corum Price £15.75m (£353 psf)
Vendor Longmead Capital NIY 6.46%
Vendor Orchard Street
Under Offer
Brighton
Clarendon House, 4 SE Office Portfolio – 9 Kirkgate, Epsom 8
AD
GE ISIN
Cambridge
V
Richmond, Chelmsford, Size 26,321 sq ft
Leatherhead
G
Price £13.9m (£584 psf) Price £9.85m (£374 psf)
NIY 4.43% Price £59.71m (£503 psf) NIY 6.50%
Purchaser M&G NIY 5.90% Vendor Aberdeen Standard
Vendor LaSalle Investment Purchaser CLS Holdings Investments
Management Vendor Aviva Available
2 SOUTH EAST OFFICE BULLETIN
SOUTH EAST OFFICE INVESTMENT MARKET REVIEW – Q3 2020
Outlook and Market Insight
The Q3 figures reflect the lighter Covid-19 restrictions over the Q3 2020 saw a new wave of interest for previously launched
summer which rebuilt confidence and enabled the practicalities assets including Mountbatten House, Southampton (purchased
of transactions to happen in comparison to the lockdown by Castleforge Partners) and R+, Reading (recently under offer
conditions of Q2. Investors are learning to live with Covid and to Oval) both at prices reflective of current market conditions.
the deals over this quarter provide a cross section of investors The postponement of new stock being launched in Q1 & Q2 has
including overseas, UK fund, property company and Local impacted on Q2 and Q3 transaction volumes however there
Authority activity. The latter continues to be conservatively has been an upturn in new sales activity over the last month
active as they continue to grapple with ways of remedying as vendors look to capitalise on improved activity levels which
hefty budget deficits. The market remains primarily a ‘risk off’ led should bolster the Q4 volumes. We anticipate that property
market, however, where ‘risk on’ opportunities properly reflect companies and private equity investors will emerge as the
their inherent risk in pricing there is healthier levels of demand dominant buyer pool taking advantage of adjusted pricing.
than before.
The lifting of the material uncertainty clause for regional
The £45m forward funding of One Cambridge Square - office valuations in August has boosted activity and improved
Cambridge by Schroders UK Real Estate Fund is notable. liquidity. It is also an important step forward for open-ended
A rare speculative office funding which forms part of the UK property funds to lifting suspensions. To date Royal London,
wider regeneration around the new Cambridge North railway Columbia Threadneedle, St James’s Place, LGIM and Schroders
station. At close to 100,000 sq ft it yet again demonstrates have announced plans to re-open. Institutions continued as net
the confidence in occupational markets which are heavily vendors for Q3 2020, accounting for £184.34m of sales. Whilst
underpinned by R&D. It also highlights that demand remains most of the retail funds remained gated for most of the quarter,
for ‘Winning Cities’ and this can be further evidenced by the many are looking to increase their cash weightings. M&G are
interest received on Florey and John Eccles House which GE are an example with R+ in Reading, Wavendon Business Park and
selling on The Oxford Science Park. 5 The Square on Stockley Park all recently being placed under
offer. Focus will remain on ensuring healthy liquidity levels to
meet redemption requests and in the short term they look
set to continue to be net sellers with a selection of office
opportunities being offered across the funds.
Bourne Business Park, Weybridge, KT15 2SJ
SOUTH EAST OFFICE BULLETIN 3
ACTIVITY BY INVESTOR TYPE
Local Authorities Institutions Property Companies
Local authorities completed two UK institutions were net vendors Property companies increased their
acquisitions totalling £54.95m, reflecting for the quarter as they continued activity in Q3 as activity returned to the
16.51% of the total transaction volume their conservative trend for the year. market, creating a buying opportunity
for the quarter. Q3 saw Surrey County Institutions accounted for £184.34m of for high yielding core-plus and value-add
Council acquire the 20 acre former disposals, reflecting 55% of the total opportunities at a discount. Property
Canon HQ in Reigate for £47.45m disposal volume for the quarter. The retail companies accounted for £77.21m
to relocate their headquarters from funds remain focussed on strengthening across two deals, reflecting 23% of the
Kingston in January 2021. Q3 also saw their liquidity positions to meet any Q3 total. A notable deal included the
South Cambridgeshire District Council redemptions as suspensions begin to lift. three-property portfolio acquisition by
acquire 296 Cambridge Science Park With regards to acquisitions, Institutions CLS Holdings for £59.71m / 5.90%. The
for £7.2m / 5.95% from CBRE Global accounted for two transactions for South East and Greater London portfolio
Investors. 296 Cambridge Science Park the quarter totalling £58.9m. A notable sold by Aviva Investors was 94% let and
was let on a new 10-year lease to Cantab transaction included the speculative comprised 1 Church Road in Richmond,
Research Ltd. Despite local authorities forward funding of One Cambridge Priory Place in Chelmsford and Kings
representing a c. 20% drop in quarter on Square - Cambridge by Schroders UK Court in Leatherhead.
quarter transaction activity, the need to Real Estate Fund for £45m. Institutional
bolster income remains a high priority activity remains very low in the context
and they remain competitive for in of the five-year average as demand is
borough opportunities offering low asset selectively focused on prime town centre
management and security of income in assets in robust occupational submarkets.
excess of five years. An example of this was the acquisition of
Clarendon House in Cambridge by M&G
for £13.9m, 4.43% NIY.
Overseas Investors Private Equity
Overseas investors emerged as the dominant buyer for Q3, Private equity investors made one transactions in Q3, which
accounting for £132.73m of acquisitions, as they continue to was made by Arrow Capital Partners acquiring Churchill Court in
selectively take advantage of the favourable exchange rates. Crawley for £8.9m from Clearbell Capital. Arrow Capital Partners
Notable deals included the acquisition of Bourne Business aim to redevelop the 4-acre site into a new urban logistics
Park for £80.53m by Straits Real Estate, and Keats House in facilities site. The second private equity investment for the
Leatherhead for £19.3m by CORUM. Building 3000 in Chertsey was quarter was Building 3000 in Chertsey being acquired by Kamco
acquired by Kamco Invest and M7 (using overseas funding) for Invest and M7 for £23m from Aviva Investors. Building 3000
£23m from Aviva Investors. Building 3000 formed part of a three- formed part of a three-property regional portfolio, with assets in
property regional portfolio, with assets in Scotland and Bristol. Scotland and Bristol.
Overseas investors have remained active throughout 2020,
accounting for a number of high profile acquisitions including
Stanhope’s acquisition of Building 7 at Chiswick Park for £312m,
which was financed by the Bank of China, Corum’s off market
purchase of 2 Roundwood Avenue on Stockley Park for £40m,
Arlington Business Park acquisition by CapitaLand for £129.25m
(Gerald Eve advised), the Cisco HQ at Bedfont Lakes acquisition
by Fraser’s Property Group for £135m.
4 SOUTH EAST OFFICE BULLETIN
Key deals, left to right: Building D, Bartley Wood Buisness Park, Hook and Florey House & John Eccles House, The Oxford Science Park
Outlook
Looking forward to Q4, there are a number of factors which will determine the direction of the market, not least the
ever-changing situation around the second wave of Covid-19. In addition, the political positioning around Brexit and the
US election will surely weigh heavily on both vendor and purchaser decision-making over the next quarter. But as the
market and pricing starts to correct we do see more seasoned and opportunistic purchasers returning to the market to take
advantage of the volatility.
Q3 2020 key deals
Sold Price
Property Purchaser Vendor
Yield (NIY) Price Price (psf)
Bourne Business Park, Weybridge 6.75% £80,530,000 £437 Straits Real Estate LaSalle Investment Management
One Cambridge Square, Cambridge n/a £45,000,000 £451 Schroders Brookgate and Network Rail
Keats House, Leatherhead 6.80% £19,300,000 £383 Corum Longmead Capital
Clarendon House, Cambridge 4.43% £13,900,000 £584 M&G LaSalle Investment Management
Building 3000, Chertsey 7.07% £23,000,000 £346 Kamco Invest and M7 Aviva
SE Office Portfolio - Richmond, Chelmsford, Leatherhead 5.90% £59,710,000 £503 CLS Holdings Aviva
Under Offer and Available
Lettable Asking Price
Property area Vendor Comments
(sq ft) Yield (NIY) Price Price (psf)
Building D, Bartley Wood Buisness Park, Hook 49,240 8.70% £8,950,000 £182 Fprop Available. GE Advising
Florey House and John Eccles House,
44,587 6.46% £15,750,000 £353 Orchard Street Under Offer. GE Advising
The Oxford Science Park
Kirkgate, Epsom 26,321 6.50% £9,850,000 £374 Aberdeen Standard Investments Available. GE Advising
SOUTH EAST OFFICE BULLETIN 5
South East Office Annual Transaction Volumes Purchasers by investor type, Q3 2020
Source: Gerald Eve Source: Gerald Eve
£ million
4,500
16% Local Authority 18% Institutions
4,000
£3,923m
£3,824m
£3,744m
3,500
3,000
£3,209m
10% Private Equity
£3,201m
£2,877m
2,500
2,000 23% Property Companies
1,500
£1,552m
1,000 33% Overseas
500
0
2014 2015 2016 2017 2018 2019 2020
Investment Volume by Net Initial Yield Banding, Q3 2020 Vendors by investor type, Q3 2020
Source: Gerald Eve Source: Gerald Eve
%
40 14% Corporate
55% Institutions
35
35.1%
30
30.6%
14% Developer
25
20
22.1%
15 12% Private Equity
10
12.2%
5% Overseas
0.0%
5
0
VP 9%
Investment Volume by South East Sub-Region, Q3 2020 Q3 Transaction Volume Comparisons
Source: Gerald Eve Source: Gerald Eve
£ million
£333m 2020
90 £1117m 2014
80 £909m 2019
24.2%
22.8%
70
19.9%
60
50 £861m 2018 £793m 2015
40
12.2%
30
£725m 2016
3.0%
20 £1552m 2017
West London 0.0%
East 0.0%
10
0
Greater London
Thames Valley
M3 Corridor
North
South
6 SOUTH EAST OFFICE BULLETIN
Gerald Eve Corporate Finance
Market Summary Impact on Interest Rates
In the year to date, 2020 has been a very challenging year There have been noted increases in margins across all property
for the Real Estate Lending Market. The onset of COVID-19 sectors. The margin increase varies between lender and asset
following the market uncertainty of Brexit in late 2019 has led to class, but increases have ranged from 20-50 basis points. The
a material contraction in new business. highest margin increases have been seen by debt funds and UK
banks whereas international banks (excluding German Banks)
According to the UK Commercial Real Estate Lending Report: have shown the lower margin increases.
Mid-year 2020, new lending is down by 34% year on year and
this represents the second consecutive six month period of Loan pricing for retail assets have seen some of the highest
falling origination which a number of the Lenders surveyed for margin increases and looking forward to 2021 further margin
this report noting that they did not write any new business in increases of c25bps have been predicted.
the UK during the survey period.
The Question of Distress
Although some £15.5bn of loans were written over half of this
related to the refinancing of existing facilities with less than Despite the challenges of valuation, interest payments and
45% being for new acquisition financing. increasing margins, banks are choosing forbearance and
covenant waivers in the short-term. A funding gap does exist
This material fall in new business has been driven by a number with over £20bn of retail and alternative assets due to be
of factors including lenders diverting resources to manage and refinanced over the next 24 months but this is significantly less
process the large number of CBIL’s loans and Bounce Back loans of a funding gap than we saw at the height of the GFC between
underwritten with the benefit of a UK Government Guarantee. 2008-2011.
In addition to this, many Lenders have been working with
existing borrowers on their current facilities which may have 2021 and Beyond
breached or are about to breach their financial covenants often
With Global economies still reeling from the impact of COVID and
granting short term extensions or waiving covenants until 2021.
Governments still pumping money into the economy, we expect
Whilst there appear to be low levels of default in the finance the banking sector will remain cautious in 2021. The likely impacts
market currently, looking forward to 2021, this may well change of this caution will be continued upward pressure on margins and
as covenant waivers expire and interest payments are missed. reductions in the LTV ratios lenders are willing to offer.
These defaults may well be focussed on sectors such as Retail
We also believe Lenders may remain selective in which sectors
and Hospitality and Leisure which have all been significantly
they want to deploy. We expect to see continued support
impacted by COVID.
for well let industrial and distribution assets, and residential
development and investment however retail and hospitality
Impact on Loan to Value assets and single let assets generally other than to investment
The issue of Loan to Value has been compounded by material grade covenants will remain more challenging to finance.
valuation uncertainty and exceptional market conditions. This
has led to a number of lenders waiving valuation requirements Gerald Eve Corporate Finance covers all markets and sectors
in the short term. and can help you source and origination new debt as well as
assist in negotiating with your current lenders.
According to the report, LTV’s are at historic lows with an
average LTV of 50-55%.
Steven Oliver
Tel. +44 (0)20 3745 5892
Mobile +44 (0)7908 622355
soliver@geraldeve.com
SOUTH EAST OFFICE INVESTMENT TEAM
Guy Freeman Angus Minford
Partner Partner
Tel. +44 (0)20 3486 3471 Tel. +44 (0)20 3486 3792
Mobile +44 (0)7796 813141 Mobile +44 (0)7967 506535
gfreeman@geraldeve.com aminford@geraldeve.com
Charles Boyes Jason Nearchou
Partner Partner
Tel. +44 (0)20 3486 3472 Tel. +44 (0)20 3486 3475
Mobile +44 (0)7796 813141 Mobile +44 (0)7704 397381
cboyes@geraldeve.com jnearchou@geraldeve.com
Will Powles
Senior Surveyor
Tel. +44 (0)20 7333 6387
Mobile +44 (0)7788 393223
wpowles@geraldeve.com
OFFICES
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Tel. +44 (0)20 7493 3338 Tel. +44 (0)29 2038 8044 Tel. +44 (0)161 259 0450
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London EC4M 9DL Glasgow G2 2HG 201-249 Avebury Boulevard
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Tel. +44 (0)121 616 4800 Tel. +44 (0)113 204 8419 West Malling
Kent ME19 4DN
Tel. +44 (0)1732 229420
Disclaimer & copyright
This brochure is a short summary and is not intended to be
definitive advice. No responsibility can be accepted for loss or
damage caused by reliance on it.
© All rights reserved
The reproduction of the whole or part of this publication is strictly
prohibited without permission from Gerald Eve LLP.
11/20
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