Canary Wharf Group (CWG), the property firm that operates London’s second-largest financial district, is selling a landmark building for £208 million (S$472.2 million) to tap into surging demand for prime UK property.
CWG, the main operating subsidiary of AIM-listed Songbird Estates, has agreed to sell the 314,000 square foot office building at 5 Churchill Place to a Bermuda-based private investor at a yield in the region of 6 per cent.
The recently developed property, which was originally designed for defunct US investment bank Bear Stearns, was sold at a £38 million premium to its June 30 book value.
The majority of 5 Churchill Place is let to JP Morgan Markets Limited for 20 years from August 2009 at an annual rent of £10.6 million. CWG is providing rent support to the buyer for the two unlet floors totalling £2.16 million a year for a maximum period of five years.
Analysts expect most of the sale proceeds to be used to pay down construction loans, with the remainder set aside for new projects emerging from CWG’s four million square foot landbank.
Songbird shares rose 0.5 per cent to 153.6 pence by 0842 GMT against a 0.3 per cent fall in the FTSE Real Estate Index. The sale of 5 Churchill Place reflects a sharp rise in investor appetite for well-let UK offices following the climax of the worst commercial property slump seen for generations.
The recent market bounce, mostly driven by wealthy investors in search for higher-yielding investments, has fuelled concerns of a pricing bubble in UK property that could pop dramatically in 2010 if banks bring more distressed property to market.
Earlier this week, LaSalle Investment Management warned that government monetary and fiscal stimulus policies could be drawing too much money back into property ahead of a solid recovery in occupier demand.
LaSalle said that this excess liquidity risk was already building in China and, to a lesser extent, Britain. It urged investors to maintain strict investment discipline that focuses on achieving a set return with affordable and realistic leverage.
Source : Business Times – 10 Dec 2009
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