One of the largest assets for sale in the London office market is a case study in what can go wrong when owner and tenant incentives are misaligned, according to a note to clients from a private equity fund manager.

The result: an office put up for sale for a third less than the price paid just five years ago.

Vestas Investment Management and Savills Investment Management appointed brokers to sell the 180K SF 125 Shaftesbury Ave. in the West End of London in June, according to a statement from CBRE, one of the brokers.

The building includes 140K SF of office space and 40K SF of retail. The asking price for the 1982-vintage building, which occupies a 1.2-acre city block, is £180M. It is being sold with vacant possession.

Vestas and Savills, on behalf of primarily Korean clients, bought the building for £267M in late 2018 from Mike Hussey’s Almacantar.

The tale of how £267M become £180M in the space of five years is succinctly told in a note to investors from Castleforge, the real estate private equity firm that just bought Deutsche Bank’s former City of London HQ for £257M, with plans to refurbish the 320K SF building into a £1B asset.

In summer 2017, Almacantar leased the entire 140K SF office portion of 125 Shaftesbury to WeWork on a 20-year lease at a rent of about £70 per SF. The lease was in the name of a special-purpose vehicle, and as part of the deal, a big portion of the fit-out cost was likely paid for through landlord-tenant incentives.

WeWork leased the entirety of its space to Facebook, now Meta, on a two-to-three-year lease a year later, in summer 2018.

At the time, WeWork was keen to undertake deals with large corporate occupiers to highlight to potential stock market investors that it had a big roster of blue-chip tenants ahead of a potential initial public offering, Castleforge wrote in the note to investors. The deal for Vestas and Savills IM to buy the building, fully let with a long lease in place, was agreed upon in December that year.

By that point, however, Facebook had already agreed to a 600K SF pre-let on brand-new office space in King’s Cross, which opened in 2021. With that new space coming online, the tech giant decided the flex office space at 125 Shaftesbury Ave., on a short, easily breakable lease, was surplus to requirements and vacated the building.

Faced with an entirely vacant building and needing to shed office space to preserve cash after its failed 2019 IPO attempt, WeWork handed the space back to the owners, “leaving them with entirely empty office space in a building that requires a major refurbishment and substantial re-leasing costs,” Castleforge said.

“Instead of collecting 20 years of stable income, investors find themselves stuck with a building that will generate income again only after millions of pounds of capex and risk mitigation.

“This was not a project that the building’s investors were willing to undertake: 125 Shaftesbury is back on the market now, this time at an asking price of [£180M].”

In its statement, CBRE said architect Buckley Gray Yeoman, has been appointed to undertake feasibility options for the landmark building.

"The building has a strong history of attracting central London’s most innovative businesses including BT, Yahoo and most recently Meta,” it said in a statement.