The developer of the London building dubbed “the world’s smartest office” is gearing up to sell the building next year, in a deal that could value it at £105m.
Slovakian company Middlecap hopes to sell its 68,000 sq ft Southworks office scheme in Southwark, SE1, at a 4% yield, as the company targets up to £100m of fresh central London office investment in the coming months.
Tomáš Jurdák, Middlecap’s head of real estate, told EG the developer is in the process of letting out the building, with just under half of the site under offer to potential occupiers as of last week.
The company could launch a sale as early as February, depending on the strength of the leasing market. The proceeds would be recycled into new acquisitions.
“If the market situation is not dramatically different [early next year] then we will reuse the capital so that we can get out and focus on new projects,” Jurdák said.
Middlecap declined to give a guide price but London agents have said the building could fetch up to £105m at current market rates. That would be reached if it achieves prime rents for its area, estimated at around £65 per sq ft.
Southworks was named the smartest office block in the world at the 2021 Futureproof Awards this summer, for its central digital operating system which monitors conditions such as density, occupancy, noise levels and air quality.
The building achieved a WiredScore Gold rating for its digital connectivity by meeting criteria in four key categories: infrastructure, wireless, power and connectivity.
It also achieved a Platinum Smart Building Certification earlier this year, making it only the second building in the world to do so.
Jurdák said he believes that despite sitting just outside the usual central London action zone, the development’s quality will spark interest.
“When you are designing the top product, it usually pays off. Southworks is not really a prime location, but we have had really good feedback from potential tenants because of the quality of the building,” he said.
As Southworks reaches a sale point, Middlecap is on the lookout for new acquisitions in central London.
The developer is looking at six schemes in the City and four across Midtown and the West End, with about £100m in its investment war chest.
However, rising post-Brexit construction costs are pinching investors’ wallets. “Construction prices have gone up by 25-30%, and this is not reflected in the rental growth,” Jurdák said.
“You need to either take it from the purchase price of the new site or you need to take it from your profit. And the asking prices which are coming to the market are not reflecting the increase.”
And a relative lack of stock also means that competition is fierce among bidders. “There are always eight to 20 bidders on any scheme right now, and they are always the same people.”
And despite occupiers beginning to emerge with fresh office requirements and a handful of new deals getting over the line since the summer, the leasing market remains “kind of strange,” Jurdák said.
“Maybe businesses only need half of what they needed before the pandemic with people working from home,” he added.
“After the summer, when Covid rules were lifted, we expected the market to boom but it’s not happening. There is a good number of tenants, but it is not a boom.”
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