L&G agrees City office sale as two-tier market develops

Legal & General has sold a City of London office building to a private Hong Kong investor for around £140m, well ahead of its asking price, in a deal that shows prime freehold offices are still attracting keen yields.

The institutional investor has agreed a deal to sell 99 Gresham Street at a yield thought to be around 4.25%, having put the building on the market for £129.3m at a yield of 4.5% in September.

The sale of the 95,920 sq ft scheme, which is located close to the Bank of England, will be seen as a fillip for the market after City office capital values fell by 0.1% in October, according to CBRE’s Monthly Index, the second consecutive month of decreasing capital values in the City.

It is one of the first prime freehold offices to have gone under offer among the £8bn glut currently on the market and, if completed, would reveal the existence of a two-tier market.

“Investors are being slightly more discerning and not paying prime yields for long-leasehold,” one senior City agent said.

“It’s going back to normal market conditions, in that anything with a wart on is no longer getting to the prices they were a while back.”

Long-leasehold struggles

Long-leasehold properties are said to be struggling to reach the expected pricing levels with Commerz Real’s Athene Place being under offer for around £100m - £20m short of its £120m guide price - and the Monument Building being under offer for £10m lower than its £130m asking price.

L&G, which acquired 99 Gresham Street from LaSalle Investment Management in 2006 for £95m, completed the refurbishment of the building last year and has since attracted several occupiers including insurance broker Xbridge Simply Business, CITIC International Financial Holdings and the NHS Trust Federation.

In August, L&G sold another City office, 70 Gracechurch Street, to a private Hong Kong investor for £285m, which was also well ahead of the £272m asking price.

Hong Kong buyers have been heavily active in the City office market, the most high-profile deal being LKK Health Products Group’s acquisition of the Walkie-Talkie in a £1.3bn deal in July.

JLL advised L&G.

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