Abandoned property deals have driven investment volumes in the London office market down in the first quarter of the year, but green shoots are starting to emerge.
At the start of the year two major property deals worth a combined total of £436m went kaput as sellers possibly looked to refinance in anticipation of a price recovery as interest rates fall later.
Plans to sell a 12-storey office block in Canary Wharf ended last month after its owners decided to withdraw the building from the market.
5 Churchill Place, a former office for investment bank Bear Stearns, was placed into receivership by a syndicate of lenders last year and its Chinese owners Cheung Kei Group, put the building on the market.
It was widely reported that Cheung Kei – who bought the building for close to £300m six years ago – was going to sell to Israeli real estate investment group Ariomori at a 60 per cent discount.
However, sources told property trade publication CoStar talks have now ended as the banks connected to the Chinese firm believe pricing will improve.
A second deal worth £240m by a Korean investment fund also had the rug pulled from under it for the same reason.
Mirae Asset Global Investments paused its sale of 20 Old Bailey to Indonesian investor Sinar Mas Land in favour of a refinancing and sale at a later date, the same outlet reported.
Data by information firm CoStar, shared exclusively with City A.M., showed UK office investment of an estimated £2.3bn was down 42 per cent year-on-year.
“One reason for the London drop in volume was two big sales collapsing, as sellers look to refinance in anticipation of a price recovery as interest rates fall later in the year,” the company said.
However sentiment in the commercial property market has started to improve with a number of high profile developments set to come to the capital over the next decade.
Sellar, which previously developed The Shard, plans to build a £500m, thirty-story tower at 60 Gracechurch street. The skyscraper will replace the site’s current eight-story building, occupied by German financial services firm Allianz.
According to the developer team, construction will start in 2026 once the existing building is vacated and be completed in 2029.
The building will be one of many skyscrapers joining the London skyline over the coming years.
Mark Stansfield, senior director of UK Market Analytics, CoStar Group, told City A.M. a “big jump” in interest rates has curbed commercial property values across the board over the past couple of years, with “offices especially impacted by weak investor sentiment amid rising vacancy and the rise of hybrid working.”
He explained: “Growing expectations for interest rate cuts this year have revived investor interest in good-quality buildings and redevelopment projects in London’s strongest locations, especially the West End, as the fear of making a mistake slowly gives way to the fear of missing out on snapping up well-located properties at relatively low prices.”
“When the market turns, London normally turns first, given its broad appeal to global capital, its high level of liquidity and its historic ability to recover quickly from crises, and we may be seeing the first stirrings of a rebound in values. Investors remain highly selective on location and type of opportunity, however.”
City A.M. has contacted Cheung Kei Group and Mirae Asset Global Investments for comment.