FOTBW_PPT_Feb_2023

Total Return -1.9% One Month

Income Return 0.3% One Month

Yield Impact -2.2% One Month

Rental Value Change 0.2% One Month 1.1% One Year

CENTRAL LONDON OFFICES FLY ON THE BROKERS' WALL

-7.2% One Year

3.6% One Year

-11.2% One Year

Source: MSCI UK Monthly Property Index, December 2022

VIEW ON THE GROUND

DEAL WATCH

PRICING Initial yields (%)

Investment activity during the final quarter of 2022 noticeably reduced, both across the quarter and the year. A total of £1.6 billion traded in Q4, a significant 46% decline on Q3 and the lowest Q4 total since 2008. However, despite this and given the strong start to the year, full-year investment totalled £12.7 billion, which was 1% ahead of 2021 but 23% behind the 10-year annual average of £16.4 billion.

Fenwick, New Bond Street, W1 Lot Size: £430m Yield: n/a

Outlook

Jan 2023 Oct 2022

West End

3.75% 3.75% Outward

City

4.50% 4.25% Outward

Status: Sold Comments: Mixed use development opportunity

LIQUIDITY TRACKER Volume by status (£bn)

As a result of the well-documented headwinds and economic turbulence facing the market, particularly during the latter half of 2022, prime yields across both the West End and City markets were pushed out by 50 and 75 basis points during the year, to 3.75% and 4.50% respectively.

Fen Court, 120 Fenchurch Street, EC3 Lot Size: £312.5m (50% interest) Yield: 4.37% Status: Sold Comments: Multi-let building with 14.2 years unexpired sold off-market

£4.1

Available

There were 33 transactions completed in Q4, of which just four achieved in excess of £100 million, the largest being Lazari’s acquisition of Fenwick, New Bond Street, W1 for £430 million. To date, there has been limited evidence of distressed transactions, which is positive news for the market. However issues concerning the cost of debt and ability to finance will remain at least for the first half of 2023, and will ultimately impact volumes. Strong appetite for prime assets and those offering a ‘brown’ to ‘green’ opportunity remains, and liquidity is starting to return to the market, with a handful of deals done in January. However, in the short-term, there is still limited new stock in the market, following trends seen during the end of 2022, particularly those that fall into the larger lot size price bracket and of high quality. Furthermore, the decoupling of value between the top and bottom end of the market is apparent, and we see both demand and values diverging. Due to the depreciation of sterling in recent months, there is a currency opportunity for overseas investors, who will continue to seek out income-generating assets across the capital, and this will ultimately drive up total returns. Looking further ahead, and into what forecasts suggest will be a recession recovery phase in late-2023/early-2024, central London offices will continue to remain a long-term stability play for many investors, encouraged by prime rental value growth which is evident in the market and easing of finance costs.

Bid

£1.0

Under Offer

£2.2

Foley Street, W1 Lot Size: £80m Yield: 4.4% Status: Available Comments: Long-let, well located building in Fitzrovia with a lease term of c. 20 years

Source: Cushman & Wakefield

Quarterly investment volume (£m)

£12,000

£10,000

19 Charterhouse Street, EC1 Lot Size: £54m Yield: 4.70%

£8,000

£6,000

Status: Sold Comments: FH, value add opportunity from 2025 in prime Farringdon. Purchaser: Morgan Capital

£4,000

£2,000

£0

2010

2015

2020

Source: Cushman & Wake f i e l d Resea r ch

Source: Cushman & Wakefield

Source: Cushman & Wakefield