Crunch time for offices with prime blocks up for sale

Investors’ appetite for London offices will become clearer over the next few months, with a number of big blocks in the capital having recently been put up for sale.
Deals have been few and far between over the past couple of years as a combination of rising interest rates and enduring uncertainty about working from home pushed would-be buyers onto the sidelines.
However, there are now a handful of offices, all valued at over £300 million, on the market.
Almacantar, a London-based landlord, is trying to sell One Southbank Place, Shell’s headquarters, for £400 million; Nuveen, which invests the pensions of American teachers, has put 70 St Mary Axe, better known as the Can of Ham, up for sale for £320 million; and C C Land, the Chinese developer, has brought in agents to sell One Kingdom Street in Paddington, which it hopes will fetch £300 million.
Citypoint, in the heart of the City, is the most expensive building currently up for sale, with Brookfield, the Canadian investor that owns half of Canary Wharf Group, seeking offers of at least £500 million.
If that price is achieved, it would represent the biggest London office sale since January 2023, when Land Securities sold One New Street Square, Deloitte’s base in the capital, for £350 million to a Hong Kong-based developer, Chinachem.
Some are sceptical of the £500 million asking price, however. “I’ve not spoken to anyone who thinks they’ll get near that,” one industry insider said.
So far, agents are reporting lots of interest from buyers who are again open to investing in offices. They have been drawn back by cheaper prices, with London office values falling by on average 19 per cent from their peak two years ago, according to CoStar data.
Although values have been hit hard, there is a growing feeling that they are either at or close to the bottom. CoStar estimates that London office values actually rose 1 per cent between the second and third quarters of this year.
At the same time, despite fears about the “death of the office” following the pandemic, rents for the best, most eco-friendly offices have risen sharply. That reflects a shortage of “grade A” blocks and booming demand from businesses who increasingly want to be in the fanciest buildings.
“I think the market has woken up to the strength of the underlying operational fundamentals of a lot of these offices,” an executive at one property investment firm said. “Rental performance has been strong and occupancy has been strong. Yes, the work-from-home headwind is there, but that looks like it might have stabilised.”
A major stumbling block for investors over the past few years has been a dramatic escalation in their financing costs, which have tracked the rapid rise in interest rates. The consensus in the City is that the Bank of England, which has already cut rates once this year, will keep doing so over the coming months.
“Investment volumes have been muted in 2024, but we’re forecasting a substantial increase in 2025,” Ed Bradley, head of central London investment at CBRE, the property agent, said. “Inflation rates, consumer confidence, GDP forecasts are all in a very healthy place for the UK economy. My sort of slogan is ‘2024 has been a year for deliberating whereas 2025 will be the year for deploying’.”
Although investors are taking a look at offices again, it remains to be seen what they will be prepared to pay. Of the few deals completed this year, CoStar data shows that on average they were done at a 15 per cent discount to asking price.
“Do I expect that [the sellers] will get the prices they’re quoting? Past performance over the last couple of years would suggest not, but it’s all about price discovery at this point,” the executive said. “It will be interesting to see where we end up. A test [of the London office market] is the way to frame it.”
Agents think this handful of deals will be an indication of things to come. If these blocks sell quickly and for punchy prices, more deals are likely to come onto the market. “The market seems like it’s a couple of trades away,” one said. “What I mean by that is if a couple of these [sales] go well, you might see a material re-rating.”