Suddenly, The Investment Market Comes Out Of The Deep Freeze

Scientists are still not sure what tells salmon to return en masse to the same breeding ground every year, or how monarch butterflies know to migrate north from Mexico to Canada — the length of the journey means no individual butterfly will reach its destination, but the group as a whole will survive.

And so it is with real estate investors. It is hard to pinpoint an exact trigger, but a couple of weeks ago, the London real estate investment market began to thaw out after a period of pandemic-induced hibernation. And the emergence is starting to spread beyond the capital. 

There is both anecdote and evidence to highlight the phenomenon — an uptick in properties officially registered for sale, owners kicking off sales processes for chunky assets and deals that were dropped during the early days of the pandemic starting to be picked back up. What changed to bring deal flow back? There is little concrete, but those in the market point to an increase in confidence among both buyers and sellers, as well as the economic and psychological imperatives that fuel the circle of life that is real estate investment. 

“I agree that capital markets in London have opened up, and I think it has coincided with the easing of the lockdowns,” Savills Head of Global Cross Border Investment Rasheed Hassan said. “In a period like this you have investors who are risk-averse and won’t do a deal under any circumstance, those who want to take advantage of a difficult market and look for distress, then a big group in the middle who might be buyers or sellers because they have different motivations driving them and they will more or less follow market pricing.”

The number of properties listed for sale rose to 632 in June, 37% up from May, according to CoStar. That figure is still well below the 900-plus listed in March, but is heading back toward the long-run average of 800 after falling to about 400 in April.

The second quarter had London’s third-lowest quarterly investment volume in 20 years, according to CBRE. 

In London, new sales have been kicked off in recent weeks, and old sales revived. Landsec is selling a quartet of assets with a total value of £850M, in response to inbound investment enquiries, according to reports in Bloomberg and React News.

Numbers 1 and 2 New Ludgate on the western edge of the City, totalling 380K SF, could fetch as much as £600M, a 4% yield. In the West End, the 138K SF 40 Strand could be sold for £180M, and the 62K SF 7 Soho Square could sell for £75M. 

As unlikely as it seems, some investors that have bought well and improved properties in recent years are now taking the opportunity to take a profit. Henderson Park bought the vacant 174K SF Athene Place in the City for £120M in 2018, and having leased the building, is now selling it for £260M.

Elsewhere in the City, DTZ Investors last week launched the sale of 47 and 50 Mark Lane, two assets totalling 132K SF, for £103M.

Deals that had fallen out of bed are now close to getting across the finish line, too. In March, Blackstone pulled out of a deal to buy The Cabot in Canary Wharf from Hines for £380M, but last month Link REIT, Hong Kong’s largest listed property company, went under offer to buy the 453K SF building for about the same price.

AGC Equity Partners is in talks to buy 1 London Wall Place from Brookfield for around £500M, React News reported. A deal to sell the building to Korean investor Samsung alongside DTZ Investors fell apart earlier this year. And React said Brookfield is still on course to complete the acquisition of Plantation Place for £700M. 

There is an increasing amount of activity going on outside of London as well. Prologis launching the sale of a £435M UK logistics portfolio is big but perhaps unsurprising, given how well the industrial sector has performed even during the lockdown.

Of greater note is the sale of Aeon’s 240K SF Edinburgh HQ to Hyundai Asset Management for £167M, one of the first significant UK deals by a Korean investor outside of London. 

Hassan said that on the buy side, investors had in recent weeks managed to look beyond the current uncertainty, and the imperative to spend that existed before the lockdown has not gone away. If you’re a company with £100M of capital that you need to deploy, you might get £4M of income from real estate, but you’re getting nothing if that money sits in the bank: Investors see that as £4M lost, he said. 

“If you buy real estate with long income that with a good covenant and your plan is to hold long term, the likelihood is that yields will go up and down during that time and there will be events over that period that we cannot predict today. However, if the real estate is good and the tenant can afford to keep paying the rent, then you feel secure.”

Perhaps more interesting is the attitude of sellers — after all, if no one is willing to sell, there is no market to be made. Hassan said the increasing pressure building up among buyers is giving sellers comfort they can achieve their pricing ambitions. 

“There are a large number of investors of all different types who have done very few or no transactions over the last six months now. There comes a point where some start needing to find a way to deploy capital,” he said. “In an environment where there is very little to buy, potential sellers are starting to get the confidence that they are going to get a lot of interest and a good reception if they do release something to the market. And if they don’t get the price they want, they don’t have to sell.”

Real estate does not have the hive mind that controls fish or insects: Within the wider species of investors, there are myriad motivations guiding an individual’s actions. But it can have the same result: Investors in London are on the move.