H1 2022 investment turnover surpasses £5bn milestone
June saw a significant uptick in investment volume with five deals exchanging amounting to a total turnover of £696.7m, an increase of 260% on May 2022. The transaction activity in June was primarily driven by two deals amounting to over 96% of the monthly deal volume, both of which Savills advised on.
Following a record first quarter, Q2 was more subdued with a total transaction volume of £1.11bn across 24 deals, reflecting an average lot size of £46.25m. This places H1 2022 transactional volume at £5.28bn across 62 deals, reflecting a 76.5% increase on H1 2021 and 31% above the ten-year average. This equates to the highest transactional volume during H1 since 2018, where investment volumes reached £5.8bn.
In June, on behalf of a private Asia Pacific investor, Savills advised on the acquisition of 2 London Wall Place, EC2. Completed in 2017 by Brookfield, the building comprises 191,452 sq ft of best-in-class office, retail, and ancillary accommodation arranged over two lower ground, ground, and 16 upper floors. The property is multi-let to eight office tenants and 1 retail tenant, including Cleary Gottlieb, R3, IFM Investors, MacIntyre Hudson and Barnett Waddingham for a further ten years. The price remains confidential.
Despite some challenging headwinds, Savills is tracking approximately £3.4bn of assets currently under offer in the City of London market across 24 deals, of which eight deals total over £100m. The opening up of travel corridors and a relaxation in Covid-19 restrictions alongside very low cost of financing drove investment volumes to near record levels for the first half of 2022; however, there is an expectation we will see investor appetite tempering as higher than average levels of inflation and increasing cost of debt financing remain at the forefront of investors’ minds.
Following a subdued 2021, Asia Pacific investors have been the most active on the buy side, accounting for just over half of all transactional volume
Will Wilson, Analyst, Commercial Research
Within a 12-month period, the five-year SONIA swap has increased from 0.45% in July 2021 to c.2.5% today, having peaked at almost 2.8%; this volatility in rates is limiting the number of market participants, particularly those debt-backed buyers who require financing to close transactions; however, we are starting to see investors’ focus turn to the depreciation in GBP vs a number of major global currencies including HKD (9.29) and USD (1.18) as an opportunity for cash buyers who are looking to deploy capital at a historically attractive rate.
Following a subdued 2021, Asia Pacific investors have been the most active on the buy side, accounting for just over half of all transactional volume. While this is somewhat skewed by NPS’s purchase of 5 Broadgate for £1.21bn and Ho Bee Land’s purchase of The Scalpel for £718m, it highlights the return to the market from Asia Pacific investors since the opening of travel corridors and the end of Covid-19 restrictions.
We are closely tracking a handful of active asset management opportunities over £100m, most notably Winchester House, Deutsche Bank’s UK headquarters. Originally built in the late 1990s, the building was let on a 25-year lease to Deutsche Bank, expiring September 2023, at which point, full vacant possession will be provided of the offices as the bank moves to its new headquarters at 21 Moorfields. Held freehold and totalling over 317,000 sq ft, Winchester House is arranged over 12 storeys and has the potential to increase the massing to over 650,000 sq ft across 22 storeys. This major repositioning and development opportunity is a good test of the market appetite from a global audience of investors seeking to create a landmark building in the City core.
In the month of June, Savills moved the City prime yield outward from 3.75% to 4.00%, which compares to the West End prime yield of 3.25%. The MSCI City average equivalent yield currently stands at 5.30%, while the net initial yield is 3.67%.