UK Property News 18th November 2011

More than half of the £4bn of City offices to come to market post-summer are close to going under offer as principally foreign cash-rich buyers rush to snap up the most prime assets. The investment vehicle of South African entrepreneur Nathan Kirsh is understood to be leading a shortlist of four lining up to buy the iconic Tower 42 close to the Bank of England.

London & Stamford Investments, Exemplar, with Canadian pension fund PSP Investments, and Doughty Hanson are also thought to be bidding for the iconic 324,000 sq ft tower. Tower 42 was brought to market by BlackRock UK Property Fund and LaSalle Investment Management through Jones Lang LaSalle in September for around £290m, a yield of 6.9%.

Elsewhere, market sources suggested a private Asian investor is heading the queue to buy KanAm’s £1bn London portfolio. There had been suggestions that bidders would look to split off parts of the four-building portfolio but it is understood that German fund manager KanAm, which is advised by Knight Frank, has received a series of bids for the entire portfolio at close to the £1bn asking price. Other parties thought to be in the hunt are Brookfield and Tishman Speyer.

Elsewhere there is speculation that Kuwaiti investor St Martins is in talks to buy two significant City assets - 60 Threadneedle Street from Hammerson for more than £180m, and Christchurch Court at 15 Newgate Street, EC4, from Deka Bank immobilien for around £230m. Joining the flurry of activity, Invesco Real Estate is thought to have secured Menolly Investments’ 107 Cheapside in the City of London for around £125m, a 5.4% yield, while an undisclosed Middle Eastern investor client of Knight Frank Investors is understood to have placed under offer 1 Bunhill Row from ING Real Estate Investment Management and the Canadian Pension Plan Investment Board for close to the £190m asking price.

There is keen interest in how the big ticket City assets currently up for sale fare given that more than £4bn is being formally marketed. City sources said the market is polarising between overpriced assets "hanging around" and properly priced assets attracting investor interest. Those properties which are yet to find buyers include 55 Old Broad Street, where a deal to sell to Eurohypo is thought to have stalled, Goldman Sachs' Fleet Street headquarters at Peterborough Court, 3 Bunhill Row, which is understood to have returned to market for sale, and Woolgate Exchange.

The prevalence of foreign investors tipped to be leading the queue for the most prime assets backs general market consensus that cash rich foreign parties are set to dominate the central London investment market in the coming months as bank lending dries up. On Wednesday, CoStar News was first to reveal the suspension of new lending by Société Générale which had only very recently made high profile additions to its team to bolster planned new lending ambitions next year. The decision followed an announcement from Commerzbank, which owns Eurohypo, that it was temporarily suspending new business two weeks ago.

At its recent central London seminar Jones Lang LaSalle said buyers would increasingly be equity-only foreign investors, particularly from the Far East. “The market is returning to how it was in 2009 when cash was king,” said head of capital markets Damian Corbett. “These buyers want core prime Grade A stock in the City and the West End only. Asian and Middle Eastern buyers are increasingly underpinning this.” Andrew Hawkins, director in the City investment team, added that Asian buyers were increasingly comfortable with larger lot sizes. “Around 7% of sales in central London in 2010 were to Far East buyers. This has risen to over 13% in the first nine months of this year.” Hawkins added that Asian investors that Jones Lang LaSalle had been visiting on regular trips to the Far East this year saw London prime as “gold with a dividend” and added that five new billionaire individual investors from Asia had contacted JLL in recent weeks about London opportunities. JLL also expects Chinese Life companies to be increasingly active once they are allowed to “come offshore”.

There remains concern over how many deals will complete. Colliers reported yesterday that the heightened supply in the City was attracting offers, but few deals were completing. It wrote: “Numerous offers have been made for several prime large-scale City assets (e.g. 1 Bunhill, 60 Threadneedle Street, 107 Cheapside and Drapers Gardens) but pricing, "as implied by reported bid levels, is “stable” although “pressured by foreign interest.” Colliers also noted that over half of all transactions in the UK during October were made by overseas investors, while they accounted for all deals over £100m.