INVESTORS TURN TO SUBURBS FOR BETTER RETURNS
Yields have fallen to 4.1% on a one bedroom flat in our markets. Two years ago, at the end of 2012, the same investment would have yielded 5.4%. Rents remained static over that period which meant that the continuing rise in capital values eroded the returns available to investors. (see figure 4).
For a UK investor, as long as interest rates remain low, a 4.1% return still represents a significant premium over a cash investment but overseas investors are beginning to look elsewhere as the rental returns from central London residential apartments appear unattractive.
Sales of buildings come in different forms. In November, Hurford Salvi Carr acting collectively for the individual owners of 8 flats comprising a block at Minerva House, 21/23 Bowling Green lane, Clerkenwell eC1, sold the entire property together with the freehold interest to a single investor looking for a long term rental investment. The opportunity to acquire a complete block of apartments close to the future Crossrail station at Farringdon was a unique situation and the price reflected the strength of demand for freehold residential investments.
In December we sold a 18,351 sq ft freehold, mixed-use investment, Tagwright House, 35-41 Westland Place, London N1 located just a short distance from London’s silicon roundabout. The property consists of 14 apartments, let on ASTs (unbroken) and offers highly reversionary commercial income and underground car parking. Hurford Salvi Carr acted for private clients, and it was sold to an overseas investor for an offer in excess of the asking price of £12 million. This sale comes within weeks of the opening of Hurford Salvi Carr’s office in City road at the end of last year.
Over the past twelve months our investment division has reported demand outstripping supply for ground rent investments. The traditional method of valuing this form of investment is to apply a multiple to the total annual ground rent income. Currently this form of investment is changing hands at multiples of 25 times and more.
Our investment division sold a number of freehold ground rents in 2014 including the sale of the former 1892 Kingsway College, Sans Walk EC1 in Clerkenwell, which was sold to the residents. Hurford Salvi Carr acted for the original developers Persimmon Homes. Another was the sale of a freehold reversion in Acton W3 comprising some 40 flats of which half were held on leases with only 23 years to run.
A growing number of funds and development companies are unearthing opportunities to buy into London’s emerging institutional private rental sector (PRS). TIAA Henderson real estate for instance, has recently bought 1-3 Waterson street, E2, from a private landlord, paying £8.5m for the block of 17 flats.
On the land side the development pipeline looks likely to be dominated by the outer areas in the next two years, such as Camden town, Caledonian road, Highbury, Dalston, Victoria Park, Stratford, Bow, Bethnal Green and Shadwell. These areas became the favoured locations for a new wave of land deals to coincide with Permitted development rights to convert commercial premises into residential. At the same time a surging office market across Midtown and City including hubs at Holborn, Farringdon, Kings Cross, Old street, Aldgate and the City Fringe resulted in an upturn in new commercial lettings at record rents that now enable commercial values to compete with residential values in some instances, further reducing the opportunities for residential developments in these core areas.
Telephone: 020 7250 1012
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