Overseas buyers eye London office bargains

Published 18th Aug 2008

Cash-rich international property investors are flocking to London to snap up discounted office buildings in deals that could plumb new depths for Britain's stricken property market, sources told Reuters on Monday.

U.S investment manager Atlantic Property Partners has offered around 190 million pounds to buy 88 Wood Street in the City financial district, while German property fund manager DekaBank is in talks to buy the nearby Moorhouse building for around 230 million pounds, sources familiar with the deals said.

Both offers reflect net rental income yields higher than 6.2 percent, the sources said, trumping the indicative 5.7 percent yield British Land achieved in its 400 million pound sale of the Willis Building to the property arm of the State of Kuwait in May.

The Willis Building sale is currently referred to by numerous market players as the milestone to gauge how prime office prices have adjusted during a year-old UK property correction.

But if either bid from DekaBank or Atlantic Property Partners proves successful, it will forge a new benchmark for the pricing of prime central London office assets.

Several central London office buildings such as the HSBC Tower in Canary Wharf were sold at prices representing yields of around 4 percent during the last boom, but average yields have crept steadily higher as a commercial mortgage famine puts dozens of debt-driven buyers out of action.

Deka, one of Europe's biggest real estate investors, is looking to buy the 305,000 square foot Moorhouse property as part of a UK acquisition drive fuelled by a hike in cash inflows to its open-ended funds.

The property is two-thirds owned by Hammerson, with the remaining third held by Henderson Global Investors on behalf of Pearl Assurance, according to Hammerson's UK website.

The property at 88 Wood Street has been offered for sale by a partnership led by ING Real Estate.

DekaBank, Hammerson and ING Real Estate all declined to comment on the deals in progress, while Atlantic Property Partners could not be reached for comment.

Although both transactions are yet to be completed, market players are already debating whether a 6.5 percent yield might represent the trough of the City office market, one of the hardest hit segments of Britain's depressed real estate market.

"Our 'point of maximum pessimism' may be approaching, but like any bubble, we will not know until it is all over, but we believe mid-July came pretty close," said Lehman Brothers' property analyst Mike Prew.

"Heading towards the banks' December year-ends, auditors are expected to be extra-critical of their 'reliance on experts'. 'If in doubt, value down' could trigger firesales in 2009 in our view," Prew said.

According to Lehman Brothers' estimates, capital values of London City offices are forecast to fall by 18.5 percent in 2008 and by 37.6 percent from 2007 through 2009, with a 17 percent fall in rents assumed.

Data from Investment Property Databank's UK Monthly Index shows the capital values of London City offices have tumbled 25.4 percent in the past year.

Source: ' reuters '

View All Latest News