The property at 20 Fenchurch Street, London, has always been known as the Walkie Talkie, and whiles often the butt of jokes, who’s laughing now? The property has just been sold for a UK record of just over £1.28 billion. Hong Kong based LKK Health Products Group is the buyer of the property having initially entered talks with part owner Canary Wharf last year. For the record the Walkie Talkie office block is fully let with 671,000 ft.² of office space.
20 Fenchurch Street
Canary Wharf Group and Land Securities each held a 50% share in the property prior to the sale, for which contracts have already been exchanged. A recent valuation of the property in March 2017 suggested a 50% share was worth £567.5 million so each group’s payment of £634.5 million is a significant improvement. What is interesting for many people is the fact the property has been sold on a net initial yield of just 3.4% although no doubt the new owner will look to increase rents and income in due course. It is worth noting the relatively low initial yield and the fact this is the U.K.’s largest ever single office deal.
It is believed that the £1.28 billion sale price was agreed after reflecting on the recent £1.15 billion sale of the Cheesegreater office block. This particular property was sold with the yield of 3.45% which is a touch higher than the Walkie Talkie deal. However, when you are talking 0.05% this is quite a lot of money when over £1 billion is changing hands!
Taking advantage of a weak pound?
It is interesting to see the level at which property in London is changing hands especially when you bear in mind the doom and gloom supposedly hovering over the sector. Many will also focus on the relatively weak pound which for dollar investors was at one point showing a 20% relative increase in spending power since July last year. When you are talking billion pound offers for historic properties, a 20% increase in your spending power is significant.
More deals to follow?
At a time when London has come under pressure, France is trying to pinch as much financial work as possible and the European Union is playing hardball over Brexit, surely international investors should be running for the hills? The press has been extremely derogatory about UK talks with the European Union while on the whole the UK government has refused to discuss the content of confidential meetings. The proof really is in the pudding and if international investors are willing to plough billions of pounds into the London property market what does this say?
When you bear consider the Cheesegreater has already gone and contracts have been signed for the Walkie Talkie what other prominent office blocks across London could be at risk? It does reflect well on the underlying strength of the London market but a 20% improvement in the spending power of some overseas investors could put many of the U.K.’s famous landmarks at risk. Will we see a rush of sales prior to any long-term recovery in sterling? Why are investors willing to buy now rather than wait for the outcome of Brexit talks? Is Europe really the be all and end all?