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Top trends of 2007: London hits a peak

PERE looks back at the year just passed for the trends that mattered most. Today we look at trend number nine - London broke records in 2007 for the most expensive property ever sold. Were the sellers calling the top of the market?

In April, a London office entered the record books by becoming the most expensive single asset property ever to be sold in the UK. Private equity firm Tishman Speyer and a consortium it led sold the 34-story skyscraper Citypoint near Moorgate station for £650 million ($1.3 billion; €927 million) to Boston-based Beacon Capital. But the record was to be short -lived. Within a few weeks, HSBC bank sold its European headquarters in London’s Canary Wharf for £1.1billion to the Spanish family behind Metrovacesa.

The deal caused some consternation among UK investors who failed to see how an investor could buy an office at a yield of 3.8 percent when short term borrowing rates were above this level.

London: Rising prices

If a trend was possible to detect (given that in the first case both buyer and seller were private equity firms) it was that owners were taking the decision to sell at a time they believed to be top of the market. Meanwhile, buyers still believed in the strength of London’s long-term prospects and fundamentals of the property market. Beacon Capital did not stop at the purchase of the 706,000 square foot Citypoint. The firm continued investing its $4 billion global office fund by acquiring MidCity Place for £350 million. The latter was acquired just prior to the credit crunch.

Explaining why he thought the purchase made sense, Beacon chairman Alan Leventhal was quoted as saying: “Tenants who would have anchored these developments are being cautious about making commitments and the banks are shying away from financing those development. So, at a minimum, you will be seeing a dampening down of supply for the next three to five years, which bodes well for the long-term fundamentals of the London market.”

Another US firm, Rockpoint, bought Cutlers Gardens for £410 million. In a report by property consultancy King Sturge, US firms were the most active purchasers in the City during the second quarter, making up 32 percent of the total.

The report predicted a continuance of interest not only from US firms but from a diverse geographical background: Russia, Spain, Japan, Singapore, Canada and Australia. It didn’t mention Ireland, which perhaps it ought to have done. In July, Dublin-based Quinlan Private teamed with Propinvest to buy 25 Canada Square (a neighbor of HSBC’s headquarters at 8 Canada Square in Canary Wharf) for £1 billion. Nevertheless, the agreement relegated Citypoint to third most expensive UK property ever in the space of just three months.

The credit crunch seemed to put an end to many more large London deals, subsequently, which only served to underline the impression that sellers had made the right call.