Derwent Office Sale A Rare Bright Spot Amid London Investment Market Freeze
Derwent said it had exchanged contracts to sell its 63K SF freehold interest in 19 Charterhouse Street EC1 for £54M, before costs, to a private family advised by Morgan Capital and BNF Capital.
The building, which was purchased in November 2013 for £41M after costs, is occupied by the London College of Accountancy on a lease expiring in August 2025, Derwent said. The passing rent is £2.6M a year. The disposal price represents a 4.6% net initial yield to the purchaser, a capital value of £855 per SF, and reflects a marginal discount to June 2022 book value.
The sale comes as Q4 2022 marks the worst London office investment market for more than 20 years, data from CoStar reported by Bloomberg showed. Just £365M in London offices traded hands as investors sat on the sidelines, with a sharp rise in interest rates creating uncertainty about how far asset values will fall.
Even in the fourth quarter of 2008 and first quarter of 2009, immediately after the collapse of Lehman Brothers and the nadir of the financial crisis, £1.6B and £1.1B of London offices changed hands, respectively.
The market has been further hit by uncertainty about future office occupancy amid greater working from home in London and the cost of upgrading older office stock to meet government energy-efficiency requirements.
Derwent said the sale of 19 Charterhouse Street was part of a strategy to sell smaller offices it owns and invest the proceeds in its development pipeline.