British Land Divests 3 Office Bldgs For £400m
UNITED KINGDOM – British Land, which owns the Broadgate shopping and office development in the capital, has divested a 75 percent interest in 3 office buildings in London’s West End for £400 million (US$538.8 million), reported the Financial Times on Wednesday evening (23 December, SGT).
While the transaction indicates that there’s still demand for office properties in the capital despite worries over Brexit and the severe impact of the health crisis, London has been placed into tier 4 restrictions amidst the emergence of a new COVID-19 strain that scientists said is up to 70 percent more infectious than other known variants.
Under tier 4 restrictions, non-essential shops are not permitted to open, and people are urged to stay at home. Residents are not allowed to travel to other countries and they cannot stay overnight away from home. Households are also not permitted to mingle with other families, but one person can meet another outside in a public space.
Nonetheless, those who cannot work from home are still allowed to travel for work, likewise for those who need to travel for education or childcare.
According to British Land, the buyer is the property division of German insurance provider Allianz. It is selling the assets as it wants to focus on a smaller number of mixed-use developments, such as Broadgate and a new project in Canada Water, near Canary Wharf. Still, it will retain a 25 percent stake in the office buildings and continue managing them in exchange for a fee from the buyer.
The deal is a boon for London’s office sector, which has been hit hard by the health crisis. The pandemic has led to investors staying in the sidelines due to worries that the prevalence of working from home would prompt companies to reduce their office footprint if they will permanently switch to remote working.
The acquisition “represents a great opportunity to invest in prime assets in a global city on behalf of our Allianz clients thereby broadening our UK investment portfolio,” said Allianz Real Estate’s Head of business development for Europe, Kari Pitkin, who shared that the deal has a net initial yield of 4.32 percent.
British Land’s newly appointed CEO Simon Carter commented that the “transaction demonstrates that like us, investors remain confident in the long-term prospects for high-quality assets in prime London locations.”
Over the past few months, property investors have begun returning to the office market, wagering that London will withstand the impact of the COVID-19 pandemic and the looming Brexit.
In fact, data from Knight Frank showed that investments into West End offices increased by more than 2-fold from Q2 to Q3 2020, hitting over £500 million between July and September after lockdown restrictions were relaxed. However, the figure is 40 percent lower than the long-term average.
Moreover, British Land suffered a pre-tax loss of £757 million during the first half of its fiscal year due to a sharp decline in the value of its retail portfolio. While the value of its office assets also fell, it was just a marginal 3.1 percent.
The Allianz transaction proves that “investors are still willing to pay up for quality well-let London offices, providing further evidence that valuations remain supported,” said Stifel’s analyst Sam King in a note.