Peter Seller’s archetypical cabbie who would not go “sarf” of the river in the comedian’s 1958 sketch, would have found himself in good company. Until recently, that is.
The parodied “verdant grasslands of Battersea Park” may still be off investors’ radars, but the central southern fringe further east – specifically the South Bank – no longer is. A slew of recent deals, while nowhere near the West End par, is transforming its badlands image into something much more fecund.
Core investors, such as Deka Immobilien, have targeted the area, reflecting the location’s new appeal, driven by Irvine Sellar’s Shard. Mapeley’s 87,000 sq ft Dorset House office building on Stamford Street is reputedly under offer to Yemeni investors for £39m, a 5.5% yield.
Colliers International’s head of West End investment, Dominic Amey, says of investors generally: “They want to buy a building in Mayfair but when they realise the lack of opportunities and the pricing, they are prepared to look further afield.”
Scottish Widows’ Rose Court at No 2 Southwark Bridge is on the market for £70m and went to best bids in the second week of April, with interest predominant from overseas investors. The 150,000 sq ft office is let for another five years to the Health & Safety Executive and reputedly receiving strong interest, according to Amey.
Land Securities’ £35m, 97,000 sq ft office at 42 Southwark Bridge Road also went to bids around the same time, creating two new pieces of transactional evidence to further bolster the area as an investment location.
However, the eight deals recorded in the past six months, hardly represent a bubble. Amey calls this level “insignificant” in the central London scheme. Nevertheless, deals have neither flown fast nor thick in the West End or City.
“The issue is really the lack of stock,” says Amey. “There is not a large amount of ready-made, institutional investment opportunities in SE1.”
Deka bought the Palestra building at 197 Blackfriars Road for £223m from Royal London in March. The German fund’s entry signalled a real shift in the area as an investment location.
“We have been active in London for 20 years,” says Andreas Martin, head of international sales for Deka, speaking from his Frankfurt office. “In that time the classic sub-divisions of the West End, City and Midtown have been diluting. The South Bank has more and more become a location that is institutionally acceptable.”
Institutional investors are predominantly concerned about lease length, covenant and location. However, even a trainee surveyor would be able to see that the Deka deal had legs.
Palestra is let to Transport for London until 2036, an opportunity you would be hard-pressed to replicate north of the river. Yet Martin maintains that it was not a one-off and he would consider South Bank again “if the right investment came up”.
His colleague, Till Shulz-Eickhorst, specialist for UK and Ireland, adds: “We had to spend more time on due diligence and get comfortable with the location, but it ticked the right boxes.”
The South Bank is in its initial phase, with heavyweight operators coming in to develop and invest in SE1. “Phase two will be when buyers come in to acquire the new stock,” says Colliers’ Amey.
Its transport links at Waterloo and London Bridge and the ease of access to the West End and Canary Wharf afforded by the Jubilee Line are generally cited as its strongest selling point. But rents are at a discount to the West End, it is an area that is maturing as an office and residential location and, of course, its cultural credentials are well established.
Carlyle Group is one of the brand new heavies in the area. It has submitted detailed planning
applications for a 200,000 sq ft redevelopment of Ludgate House at 245 Blackfriars Road and Sampson House at 64 Hopton Street.The mixed-use scheme will total 1.6m sq ft, comprising more than 300,000 sq ft of offices, 200,000 sq ft of retail space and 1,000 flats. “We will definitely be looking at other opportunities in the South Bank,” says Carlyle’s UK managing director, Mark Harris.
The type of occupiers attracted to the South Bank are a lot more footloose. TMT is a core sector being targeted by South Bank developers. This group, for example, is focused on connectivity, a good location and good amenities, which South Bank has aplenty. Of course, where occupiers go, developers and investors follow.
But Carlyle does not take vacant possession of Ludgate House until March 2015, with the first phase office and residential element not likely to complete until 2017.
Circleplane will bring its 20 Blackfriars Road scheme to the market in the next few months. It consists of a 23-storey building with around 200,000 sq ft of office space and a 42-storey residential tower with 286 flats.
Refurbishment
Deerbrook’s 500,000 sq ft Sea Containers House refurbishment, including 300,000 sq ft of offices and a 181,000 sq ft four-star hotel, completes in Q4 this year. Advertising firm Ogilvy & Mather is rumoured to be taking 200,000 sq ft, although it is not yet known whether Deerbrook will hold or sell.
Great Ropemaker Partnership, a jv between Great Portland Estates and Ropemaker Properties, is developing 240 Blackfriars Road. It has prelet 106,000 sq ft to UBM. However, as this deal has been done for BP Pension Fund it will, in all likelihood, be held for income.
St George’s 806,000 sq ft One Blackfriars Road residential and hotel scheme will probably be sold, but that does not complete until 2018.
Carlyle’s Harris adds: “There will be strong points around key locations on the river, which will always be on investors’ radar.”
Amey purports to have seen increasing interest from UK funds for the South Bank, a group that has recently found it difficult to compete with foreign buyers. Clearly, overseas institutions and sovereign wealth funds have been active, driven by motives as diverse as long-term income to seeking safe-havens from countries torn by civil war.
“You will never get the number and availability of opportunities, but there is no reason it should not be as popular as the West End. There is a huge depth of money out there and very little stock,” says Richard Garside, senior director for London investment with BNP Paribas Real Estate. He adds: “Any opportunity in the South Bank will see very strong demand from both domestic and overseas buyers. Its performance prospects are very, very good.”
However, Alan Sugar’s commercial property arm, Amsprop, has failed to shift its 217,000 sq ft IBM building at 76-78 Upper Ground, since it began marketing last September. The deal is being packaged as 15 years of income from a gilt-edged corporation and a future development opportunity.
Equally, Deka was not prepared to do the deal at Palestra with only 14 years left on the lease, preferring to wait until it had been restructured to 25 years.
And 25-year tenancies to government departments that have invested heavily in their offices – Palestra is TfL’s traffic control centre – do not come about very often.
