21 22

23 24 27

28

29

30

31

1

2

3

4

5

7 68

910

11

12

15

16

20

1918

17

14

13

2625

M23M3

M4

M40

M1 A1(M)

M20M2

M25

M11

Guildford

Croydon

Hemel Hempstead

Watford

Luton

Newbury

Reading Heathrow

Stansted

Gatwick

Oxford

High Wycombe

Royal Tunbridge Wells

Maidstone

Brighton

5.25%prime NIY yields remained stable

2019 SOUTH EAST OFFICES INVESTMENT BULLETIN SECOND QUARTER 2019

36deals completed throughout Q2 2019

2,500

2,000

£ Million

1,500

1,000

500

0

Q1

2012

Q1

2013

Q1

2015

Q3

2015

Q4

2015

Q1

2016

Q2

2016

Q1

2017

Q2

2017

Q3

2017

Q4

2017

Q1

2018

Q2

2018

Q3

2018

Q4

2016

Q3

2013

Q2

2013

Q3

2014

Q4

2014

Q2

2014

Q4

2013

Q1

2014

Q2

2012

Q3

2012

Q4

2012

Q2

2015

Q3

2016

Q2

2019

£543

m£713

m £861

m

£615

m

£114

6m

£632

m

£476

m

£876

m

£725

m

£327

m

£109

7m

£873

m

£867

m

£116

6m

£793

m

£111

7m

£559

m

£328

m

£770

m

£470

m

£295

m£193

m

£220

m

£452

m

£89m

Chi

swic

k P

ark

£103

7m

Gre

en P

ark

£718

m

Fras

ers

Pro

pert

y P

ortfo

lio

£155

2m

£102

4mQ

4 20

18

Q1

2019

£387

m

Quarterly transaction volumes Q1 2012 - Q2 2019Source: Gerald Eve

South East Office Investment Market Review - Q2 2019Q2 2019 by numbers

40%Institutions were the most active vendor accounting for 40% of all transactions

22%of deals were completed by property companies who were the most active buyers

£350mof South East offices are under offer

OverviewDespite the challenging macro-economic environment and ongoing uncertainty as a result of Brexit being extended until October, there is a positive underlying sentiment for South East offices. However, the subdued trend in investment volume from Q1 2019 has continued into Q2 2019 and the statistics remain behind their respective quarters last year.

Following a period of relative inactivity during the build up to the original Brexit deadline, we have however seen a positive increase in quarterly activity in Q2, as frustrated investors selectively returned to the market for the right opportunities. As a result, the transaction volume in Q2 increased by 40%, reaching £543m (average lot size £15m), which, whilst improved, is low in the context of the five-year average (£867m). Whilst transaction volumes (by value) may appear low in comparison to previous years, a total of 36 deals exceeds those recorded in Q1.

Q2 has seen a return of property companies and private equity to the market, representing 22% and 17% of total acquisitions (by value) respectively. Two significant deals this quarter included the acquisitions of Gresham House and Portland House Crawley (CLS Holdings), and Ditton Park Slough (Kennedy Wilson). Conversely, local authorities have significantly reduced their activity, accounting for just 16% of acquisitions (37% less than Q1).

H1 2019 has seen a notable increase in off-market and restricted marketing transactions to a bespoke target list, typically consisting of local authorities and institutions, as vendors have been seeking premium pricing through exclusive campaigns. Whilst completion timescales are becoming prolonged, we have also noted a contraction in the number of underbidders compared to those on similar assets a year ago, as there remains a standoff between vendors and purchasers on pricing.

Prime yields have held stable at 5.25% since the end of last year, offering a competitive return in comparison to the central London and industrial markets. Whilst prime liquid assets underpinned by robust fundamentals remain keenly sought after, investors have become more discerning with their investment criteria. Secondary assets, which carry an increased level of perceived risk, have softened by around 50-75 bps in the last 12 months as the yield arbitrage between prime and secondary assets has widened.

Investors will take comfort in the robustness of the South East occupational market as income continues to be a key driver in investment performance at this stage of the cycle. The underlying fundamentals in the South East include; acute pressures on availability, increasing take up of Grade A space, scarcity of speculative development, strong demographic compositions and improving infrastructure connections, which will likely translate into continued rental growth.

£543mof South East offices transacted

Q2 key investment transactions

Local AuthoritiesLocal authorities had firmly established themselves as the most active investor in the South East during 2018 and into Q1 2019. However, the combined impact of the local elections in May and the adoption of a more focused investment criteria, has meant there has been a notable fall in activity. Nonetheless, local authorities have completed on large acquisitions, including the sale of Woking One to Woking Borough Council, which Gerald Eve advised the vendor on. Looking ahead we expect a bounce back in demand in H2 2019 as their annual budgets get renewed, new councils enter the market and the looming cuts in funding draw closer.

InstitutionsInstitutional demand remains focused on prime assets in town centre locations that offer minimal exposure to any short/medium term market volatility. Institutions were the most active vendors in Q2 and despite completing on a number of large acquisitions they finished the quarter as net vendors. Key disposals included, Four10 Thames Valley Park Reading (RLAM), Keats House Leatherhead (Aviva) and One Eaton Street Richmond upon Thames (Aberdeen Standard). Following a brief window of retail fund redemptions, leading to several selective disposals, normality has returned. Notable acquisitions last quarter included; 1&2 Windsor Dials (Canmoor/BA Pension Fund), 177 Preston Road Brighton (Delancey/Franklin Templeton) and Victory House Brighton (NFU).

Property Companies Property companies were the most active purchaser of South East offices in Q2 with £119 million transacted across 9 deals. Property company activity resulted in a 268% increase in acquisitions on Q1 as they capitalised on the readily available debt for core offices, as well as the healthy rental growth and a softening in prices which is in-turn driving reversionary yields. Key acquisitions have included Gresham House and Portland House Crawley (CLS Holdings), Waterside Court Slough (RO Real Estate) and GlaxoSmithKline’s Stockley Park West Campus (Prologis) for a c300,000 sq ft industrial redevelopment scheme.

International Property Consultants

Ditton Park, SloughSize: 194,565 sq ftPrice: £41.3m (£212.27 psf)NIY: 3.23%Purchaser: Kennedy Wilson

1&2 Windsor Dials, Windsor Size: 68,669 sq ftPrice: £25.25m (£367.71 psf)NIY: VPPurchaser: Canmoor / BA Pension Fund

Bridge House, GuildfordSize: 40,912 sq ftPrice: £17.7m (£432.64 psf)NIY: 5.60%Purchaser: McAleer & Rushe

Focus 31, Hemel HempsteadSize: 38,557 sq ftPrice: £5.7m (£147.83 psf)NIY: 7.75%Purchaser: Private Family Office

Woking One, WokingSize: 60,245 sq ftPrice: £27.2m (£451.49 psf)NIY: 5.58%Purchaser: Woking Borough Council

Renaissance, Croydon Size: 100,487 sq ftPrice: £57.5m (£572.21 psf)NIY: 5.00%Vendor: M&G

Oriel, Quadrant & Boston House, Richmond Size: 57,390 sq ftPrice: £27.97m (£487.00 psf)Vendor: Aviva

One Eton Street, RichmondSize: 48,300 sq ftPrice: £34.5m (£714.29 psf)NIY: 5.40%Purchaser: Europa Capital Partners

Victory House, BrightonSize: 84,988 sq ftPrice: £36.5m (£429.47 psf)NIY: 4.83%Purchaser: NFU Mutual

Four10 TVP, ReadingSize: 71,000 sq ftPrice: £38m (£535.21 psf)NIY: 5.30%Purchaser: Reading Borough Council

177 Preston Road, BrightonSize: 34,849 sq ftPrice: £11.3m (£324.26 psf)NIY: 5.06%Purchaser: Delancey / Franklin Templeton

ONES TO WATCH

ONES TO WATCH

SOLD TO LETTO LET

GERALD EVE

ADVISED

GERALD EVE

ADVISED

GERALD EVE

ADVISED

GERALD EVE

ADVISED

www.geraldeve.com

2019 SOUTH EAST OFFICES INVESTMENT BULLETIN

Key deals, left to right: Renaissance, Croydon, Ditton Park, Slough

Disclaimer & copyright

This brochure is a short summary and is not intended to be definitive advice. No responsibility can be accepted for loss or damage caused by reliance on it.

© All rights reserved

The reproduction of the whole or part of this publication is strictly prohibited without permission from Gerald Eve LLP.

South East office investment team

Charles BoyesPartnerTel. +44 (0)20 3486 3472Mobile +44 (0)7796 813141cboyes@geraldeve.com

Guy FreemanPartnerTel. +44 (0)20 3486 3471Mobile +44 (0)7796 813141gfreeman@geraldeve.com

Will PowlesSenior SurveyorTel. +44 (0)20 7333 6387Mobile +44 (0)7788 393223wpowles@geraldeve.com

Jason NearchouPartnerTel. +44 (0)20 3486 3475Mobile +44 (0)7704 397381jnearchou@geraldeve.com

4,500£ million

3,500

2,500

1,500

500

4,000

3,000

2,000

1,000

02014 2015 2016 2017 H1

2019

£2,8

77m £3

,923

m

£3,8

24m

£930

m

£3,2

09m

2018

£3,7

44m

180£ million

80

60

40

20

0West

LondonGreaterLondon

ThamesValley

M3Corridor

North South

£90.

5m 1

6.7%

£30.

2 5.

6%

£152

.5m

28.

1%

£61.

8m 1

1.4% £1

30.9

m 2

4.1%

£77.

6m 1

4.3%

160

100

120

140

South East office annual invesment volumeSource: Gerald Eve

Investment volume by sub-region,Q2 2019Source: Gerald Eve

45%

20

35

40

30

25

15

10

5

0VP <6% 6-7% 7-9% >9%

25.1

%

42.1

%

8.0% 20

.9%

3.9%

Investment volume by net intial yield,Q2 2019Source: Gerald Eve

Purchasers by investor type 2019Source: Gerald Eve

13.4%Institutions

21.9%Property

Companies

12.2%Private & Charity

3.1%Overseas

12.7%Developer

16.9%Private Equity

16.4%Local Authority

1.5%Undisclosed

Vendors by investor type 2019Source: Gerald Eve

1.5%Managed Funds

40.1%Institutions

2.5%Private and Charity

12.1%Private Equity

13.1% Corporate

Overseas InvestorsThe limited exposure from overseas investors we reported in Q1 was replicated in Q2 as the weight of capital targeting South East offices became more central London and ‘Big 6’ focused. We are aware of active requirements in the market, however we are also aware that there are a limited number of Shariah-compliant opportunities of scale too. We expect overseas investor activity to grow throughout the rest of the year as pressure on sterling continues to make the UK an attractive place to invest. Notable Q2 transactions included Inspired Bracknell - a recently refurbished Grade A multi-let building, with an AWULT in excess of 5 years.

SECOND QUARTER 2019

Ones to watch

PropertyLettable

area (sq ft)

Sold PriceVendor

Yield (NIY) Price Price (psf)

Renaissance, Croydon 100,487 5.00% £57,500,000 £572.21 M&G

Oriel, Quadrant & Boston House, Richmond 57,390 - £27,972,000 £487.00 Aviva

Private Equity Q2 marked an important return for private equity investors as repositioning opportunities, providing significant asset management potential to capture rental growth and double-digit returns have been brought to the market. These opportunities however remain limited and have been hotly contested with 1&2 Windsor Dials witnessing a very competitive bidding process. We anticipate a similar level of demand for Oriel, Boston and Quadrant House, Richmond as it offers a unique opportunity to acquire a prime Greater London site with immediate and future repositioning potential.

Outlook and Market Insight • At the end of Q2 £350 million of South East

Offices were under offer across 23 deals. • We anticipate greater deal volumes over the

summer months as vendors take advantage of the period before the Brexit deadline and potential political upheaval in October.

• Off market deals and an increase in local authority activity will help support volumes in Q3.

• The underlying fundamentals in the occupational market will drive rental growth.

• Prime yields are likely to remain firm at 5.25%.• We expect a softening in yields on secondary

assets throughout 2019 which could create buying opportunities.

• The institutions will continue to buy selectively in core markets.

• The weak pound will continue to make the UK attractive to overseas investors.

1.8%Corporate

15.2%Property Companies

10.7%Overseas

3.7% Developer

1.0% Sale and Leaseback

*Gerald Eve advised

Q2 2019 key deals

PropertyLettable

area (sq ft)

Sold PricePurchaser

Yield (NIY) Price Price (psf)

1&2 Windsor Dials, Windsor 68,669 VP £25,250,000 £367.71 Canmoor / BA Pension Fund

Ditton Park, Slough 194,565 3.23% £41,300,000 £212.27 Kennedy Wilson

Bridge House, Guildford 40,912 5.60% £17,700,000 £432.64 McAleer & Rushe

177 Preston Road, Brighton 34,849 5.06% £11,300,000 £324.26 Delancey / Franklin Templeton*

One Eton Street, Richmond 48,300 5.40% £34,500,000 £714.29 Europa Capital Partners

Victory House, Brighton 84,988 4.83% £36,500,000 £429.47 NFU Mutual*

Focus 31, Hemel Hempstead 38,557 7.75% £5,700,000 £147.83 Private Family Office*

Woking One, Woking 60,245 5.58% £27,200,000 £451.49 Woking Borough Council*

Four10 TVP, Reading 71,000 5.30% £38,000,000 £535.21 Reading Borough Council