In Q3, the volume of commercial real estate investments was 41% lower than last year and 63% lower than the average of the past 5 years, even though it did improve compared to Q2.
The values went up thanks to the biggest deal of 2020, that is, selling 25 Cabot Square, an office building in Canary Wharf in southeast London for £380 million to Link REIT. The deal was an impressive debut of the Hong Kong-based company in the British market. The building was sold as an investment asset featuring rental income with a significant rate of return of 4.64% p.a. Key tenants are two departments of the UK Government, such as Competition and Markets Authority and Office of Rail and Road, and SPACES – flexible office operator within the IWS plc portfolio (formerly known as Regus plc- the leading office provider in the UK).
Moreover, Google being an anchor occupier of Central St Giles, one of the largest office complexes in the West End of London, has expressed its plans to acquire the building.
This is not the first time a global corporation considered purchasing a building while being its anchor tenant. Recently, we covered the story of Chanel fashion house acquiring a building on New Bond Street, the most expensive retail street in London, where its flagship store is located. What does all of this mean? We think it means that companies like Google and Chanel benefit from their surplus funds and unstable market conditions to switch from being tenants to owners while large real estate funds cautiously try to estimate risks and make forecasts.
There is an evident change in the sale and leaseback tendency of the past 30 years, where companies would sell their headquarters to large institutional investors and become tenants in order to release some funds and facilitate the balance.
Putting the 190-metre-tall Scalpel skyscraper up for sale is yet another anticipated market event. If the deal on purchasing Scalpel offices is closed, it will become one of the biggest deals in the UK, amounting to approximately £1 billion. Currently, the skyscraper belongs to WR Berkley Insurance, a US-based company willing to sell it for no less than £820 million. Even though it’s too early to make any predictions, we are pleased to see that London remains the same.