The £500m sale of two new government headquarters neighbouring the Olympic Park is about to kick off.
Lend Lease and London and Continental Railways are preparing to sell a 500,000 sq ft office prelet to the Financial Conduct Authority and a 250,000 sq ft block prelet to Transport for London at the International Quarter in Stratford, E20.
The two adjacent schemes are being developed in the south of the park.
JLL and BNP Paribas Real Estate have advised on the leasing programme and are expected to be appointed to source a buyer or buyers for the buildings as soon as the leases are signed, which could be as early as next week.
Bids of around £310m are expected for the FCA building, while the TfL building is likely to attract bids of £190m, both of which would reflect yields of 5.25%.
The FCA and TfL have been under offer for the office blocks for around a year. The FCA has agreed a 20-year lease, while TfL will sign a 25-year lease. Both leases will include five-yearly reviews, the first of which features a minimum uplift to the initial headline rent, which is close to £40 per sq ft.
The sales will prove a bellwether for major investor appetite for London’s newest emerging office district.
The FCA’s and TfL’s move to Stratford is part of a process to regenerate the area, kicked off by London’s bid for the 2012 Olympic Games. The buildings make up the majority of the first phase of the International Quarter, which when fully developed will include 4m sq ft of offices, 330 homes and a four-star hotel.
The long leases and public sector covenants are expected to be highly attractive to a broad range of institutional buyers. However, the leases are not index linked and are therefore unlikely to be targeted by UK institutions investing on behalf of annuity funds.
The Stratford office market remains largely untested, but Westfield has recently concluded a significant sale of the first office block at its neighbouring Stratford City shopping centre and office campus.
The 130,000 sq ft 1 Stratford Place was sold to Tristan Capital Partners’ Curzon Capital Partners IV fund for £70m, reflecting a 6% yield, after a deal to sell it to the Schroder UK Property Fund in September last year failed to complete.
The building has around 10,000 sq ft of vacant space and less than nine years left on its leases.
