The Eric Parry Architects designed office property was completed in 2009 and is now 99% let, generating £8.8m in annual rent from good selection of blue-chip tenants that include The Toronto Dominion Bank, Talbot Underwriting and Universities Superannuation Scheme.
The £175m offer marks a new high in the market for prime City of London office rental property. As the ratio of purchase price to office rental income works out at an initial yield of 5% - one of the lowest yields paid for a City office this cycle, such a low yield indicates that this is a low-risk prime property investment, reflecting its strong potential for rental growth. Since, the building is presently locked into low office rents that were negotiated at the bottom of the market, these will revert to higher open market rents once the five-yearly rent reviews fall due in 2014.
Prime commercial property has now become the core focus of St Martins Property Corporation Ltd., as it begins to re-invest the £750m cash, which it raised from the disposal of its non-core assets over the past year, into prime rental property assets.
In 2010, St Martins, the UK-based property arm of Kuwait’s sovereign wealth fund, implemented a strategic rebalancing of its portfolio, known as Project Blue, by selling off many of its smaller, secondary retail, industrial and office rental properties in the UK and Europe.
Although Hammerson had repeatedly stated that it would only sell the commercial rental property in the City once rents had risen to the buoyant market levels, the St Martins deal has already priced in some of the projected rental growth. The building with its nine storeys of office accommodation totalling 19,900 m2, will sit alongside St Martins’ other prime London offices for rent that include the Willis Building and No 1 London Bridge.