It’s not been the best year for office deals.
Hardly surprising. Between the national lockdown earlier this year, a deepening recession, questions over the role offices will play after months of WFH and, of course, the inability of international investors to get on a plane, it was never going to be a bumper year. But could the last quarter defy all expectations?
If this week is anything to go by, we shouldn’t be writing the sector off just yet. We’ve gone from famine to feast, with a news section packed full of office deals, not only in London but across the UK.
The news that WR Berkley has instructed agents to sell its European HQ the Scalpel has sent shockwaves across the market, not least because of the price tag. The insurance giant is said to be gunning for around £820m, reflecting a yield of 3.5% – in line with the 3.4% achieved on both the Cheesegrater and the Walkie Talkie in 2017. Now that’s what I’d call bullish.
My market sources are split straight down the middle on this. Some think the pricing is spot-on; it’s a new build with long-term income so well worth it. Others are less convinced and think it’s too optimistic to put a pre-Covid price on a mid-Covid sale.
They’re agreed on one thing, though: a trophy asset like the Scalpel doesn’t come along very often and will be very appealing to Asian capital. All eyes will no doubt be on Cheesegrater-owner CC Land, which has capital, an established London platform and a similar asset that’s performing well. Why not pick up another?
Markets are springing back to life outside London, too. This week, we report on a slew of offices hitting the market in Maidenhead as it gears up for Crossrail’s arrival, while German investor KanAm is under offer to buy M&G’s Quartermile 3 office building in Edinburgh for above the guide price.
These potential sales – the Scalpel, in particular – will be an interesting litmus test for the office market as businesses work out how they’re going to actually use offices post-Covid.
Dragons’ Den veteran and IPSX backer James Caan has a theory on this. He thinks that whereas previously an office would have had 100 desks for 100 people, it’s more likely to have 70 desks per 100 heads going forward.
He believes that fresh-faced 20-somethings will want to be in the office five days a week to soak up as much knowledge as they can, while people in their 30s will want to spend three days in the office and those in their 40s will only want to go in one day a week.
It’s a neat theory, but I’m not sure it holds water. If it did, we could plug all the data into a spreadsheet and find out exactly how much office space occupiers are going to need and – hey presto! – problem solved.
At Property Week, we have a team spanning those age groups and each of us has a different idea of how and where we want to work and learn. Employers aren’t going to be able to put people in boxes, and a degree of flexibility to office design will be crucial.
The big question is: will the market’s biggest office buildings hold their value in light of shifting working practices? Thanks to WR Berkley, we could find out sooner rather than later.