M&G makes £78million value add play on behalf of Asian separate account client

M&G has purchased a prime office asset in one of central London’s key submarkets for £78.3 million on behalf of an Asian separate account mandate. It is the second such acquisition as part of the client’s broader strategy to invest in value add opportunities following the £111.7 million purchase of Fleet Place House in October 2020.

Prior to the EU Referendum, the City of London office market was the lowest yielding in Europe, but now ranks as one of the highest of the major markets. Over the course of the pandemic and related lockdown restrictions, core office yields have compressed in major German markets, and in capitals such as Paris and Milan – but not London.

With already limited levels of office supply further restricted by the pandemic, highly accessible Central Business Districts (CBDs) are likely to prove more resilient moving forward. This indicates a positive outlook for rental growth over the medium term, especially for sub markets such as Farringdon – which appeals to a broad range of occupiers from the legal, financial and creative sectors, due to its connectivity and amenities. Nearby occupiers include Amazon, Goldman Sachs, LinkedIn and TikTok.

Saffron House located less than 200 meters away from Farringdon station, which connects with Thameslink, London Underground and Elizabeth Line services. The 73,000 sq ft asset is currently 81% let, has a strong leasing history and was comprehensively modernised in 2019. Good levels of natural light are provided by full height glazing, a large internal communal lounge and circa 5,500 sq ft of external terraces. M&G plans to refurbish the vacant lower ground floor to maximise light and space in addition to enhancing the entrance on Saffron Hill to provide direct access on that level.

Paul Crosbie, who leads M&G’s UK value add initiatives, comments: “Central London’s large, liquid market and deep tenant base will continue to appeal to a diverse range of occupiers. From a cyclical perspective, the supply of good quality office space remains restricted, particularly for buildings with character in these dynamic, sought after sub markets. It is these combined factors which provide us with the confidence to take income risk in these low vacancy markets, which in turn offers our investors a compelling opportunity to capture value add returns.”

“The effects of the pandemic have underlined the importance of future-proofed office accommodation; ensuring a safe, workplace with health and wellbeing amenities to welcome back and retain staff. In our view, the physical office will remain central to workplace strategies, albeit with occupiers being more discerning with regards to location and quality.”

TeckLeong Kee, Fund Manager, M&G Real Estate Asia, comments: “M&G’s ability to source quality good assets and complete the transaction in under two months is a reflection of the breadth and depth of our global team. Saffron House’s strong fundamentals coupled with the positive post-COVID outlook in the UK commercial sector and at an all-in entry price, which provides a strong spread over the 10-year UK government bond yield.”