33 gracechurch street london ec3
33 gracechurch street london ec3
HIGHLY REVERSIONARY prime city investment
105,526 sq ft of Grade ‘A’ office and retail accommodation AT the JUNCTION of the city of London’s PRIME BANKING AND INSURANCE DISTRICTS
33 gracechurch street london ec3
EXECUTIVE SUMMARY
Highly reversionary prime investment opportunity in the core of the City of London • Located at the junction of three of the City’s most historic thoroughfares, on the intersection of the prime banking and insurance districts • Redeveloped in 2007 to provide 9,803.7 sq m (105,526 sq ft) of Grade ‘A’ office, retail and ancillary accommodation • Multi-let to six tenants: SPIE, AEGIS, Clydesdale Bank, Barbican, Parabis and TK Maxx • Average unexpired lease term of more than 8 years to expiry and 4 years to break • Let off a very low average passing rent of £34 per sq ft with genuine reversionary potential • One refurbished floor to let providing the opportunity to create new rental evidence ahead of forthcoming upward only rent reviews • Held on a modern ground lease with more than 148 years unexpired and a low gearing of 5% • The property is held in a Jersey Property Unit Trust • Seeking offers in excess of £61.1m subject to contract • Attractive net initial yield of 5.5% (based on purchaser’s costs of 1.8%) • Low capital value of only £579 per sq ft
33 gracechurch street london ec3
Mansion House
The royal exchange
Bank of England
33 GRACECHURCH street
20 FENCHURCH STREET
Tower 42
THE LEADENHALL BUILDING
lloyd’s of London
THE WILLIS BUILDING
The st BOTOLPH Building
30 st mary axe
33 Gracechurch Street is located in the prime core of the City of London, at the epicentre of the global financial, insurance and shipping markets
33 gracechurch street london ec3
4
1
AN UNRIVALLED LOCATION
2 3
5
6
8
7
9
10
The City of London is a leading international business centre, and continues to reinvent itself in the changing global economic environment, increasingly attracting major occupiers from newer business sectors, evidenced by Amazon’s recent decision to locate its UK headquarters in the City. 33 Gracechurch Street is prominently situated at the junction of three of the City’s most prestigious streets: Gracechurch Street, Lombard Street and Fenchurch Street. This location positions the building perfectly at the intersection of the financial, insurance and shipping sectors of the City, thereby maximising tenant appeal. The insurance sector, in particular, has been dominating activity in the occupational market in recent years, currently being one of the most active sectors within Central London. The very central position places the building within 300 metres of the City’s premier landmarks and institutions, such as the Bank of England, the Mansion House, the Royal Exchange and Lloyd’s of London. This area of the City benefits from a very strong retail and leisure offering with Leadenhall Market just to the north-east of the property, the House of Fraser department store just to the south and a number of prime retailers, such as Marks & Spencer, Boots, Gap, New Look and Monsoon in the immediate vicinity.
The immediate area offers a vibrant mix of retail, restaurants and bars to satisfy the most discerning tastes
1
the royal Exchange
2 bank underground station ON Lombard street 3
Lloyd’s of London
4 Marks & Spencer, Fenchurch Street 5 GAP, Gracechurch Street 6 Sushi Samba, Heron Tower 7 Cannon Street Station 8 Leadenhall Market 9 EDE & Ravenscroft, FENCHURCH STREET 10 THE bank of England
33 gracechurch street london ec3
26
MOORGATE
LIVERPOOL STREET STATION
7 M I N U T E S WA L K
1 30
24 2 3
25
6
11 E
16 14
23
5
RGAT
20
19
28
STANSTED AIRPORT
27
6
8
31 T
I
R TO
EN
GA TE ST R 18 EET
10
W
9
ET
GR
PROPOSED NEW BANK ENTRANCE
ES STR EET
28
33 Gracechurch Street’s central position provides excellent access to a wide range of public transport facilities.
LIVERPOOL STREET
MARKS & SPENCER
5
ALDGATE ST PAUL’S
RE ST
FENCHURCH STREET
29
ET
30
18
FENCHURCH STREET
25
LONDON CITY AIRPORT BLACKFRIARS
MANSION HOUSE
19
21 8
BANK
28
CH UR CH F EN
4
ALDGATE EAST
14 29
24
CANNON STREET
MONUMENT
TOWER HILL CANARY WHARF
13
MONUMENT EASTCHEA P GR
22
21
EA TT OW
25
8
31
LEADENHALL MARKET
20 FENCHURCH STREET
HOUSE OF FRASER
MOORGATE
3 20
LLOYD’S OF LONDON
2
T
THAM
EE
STRE
CANNON STREET STATION UPPER
R ST
12
AC E
M
NON
9
CH
IA
ILL
CAN
16 1
LO MB AR D
ALDGATE
22 T LEADENHALL STREE
CORNHILL
VIC
MANSION HOUSE
27
E S WA L K
INUT 3 M
G
12
T TREE LE S
27
23
7
13
KIN
7
BANK
THE MANSION HOUSE
EE
E QU
14
10 TR AS
THE ROYAL EXCHANGE
T
POUL TRY
11
BI S EE
29
11
21
D NEE EAD THR
R ST
PSIDE
22 20
17 12
T
ES
10 CHEA
ST PAUL’S CATHEDRAL
BANK OF ENGLAND
INC
9
32
PR
3
16
15
2
HO PS
REET
EE
AM ST
17
18
6
STR
1
GRESH
UR
ST PAUL’S
17
13
15
Communications
HEATHROW AIRPORT
5 M I N U T E S WA L K
CH
30
ON W ALL
7
19
5
MOO
4
LON D
ER
23
TOWER HILL
15
ST R
EE
4 LOWE R
THAM
GE
24
ES ST
WATERLOO
REET
26
SOUTHWARK
LONDON BRIDGE CANARY WHARF
26
SOU
THW ARK
BRID
T
BRIDG E LOND ON
GATWICK AIRPORT
SERVICES
Monument
100m
Northern, Circle, Central, District and Waterloo & City lines
19. BNP Paribas 20. Lloyds Banking Group 21. Industrial Bank of Japan 22. Deutsche Bank 23. Schroders 24. Legal & General 25. ING 26. Bloomberg 27. Blackrock 28. Prudential Regulation Authority 29. Fidessa 30. Nomura 31. Banco d’Intesa Sanpaolo 32. Toronto Dominion Bank LONDON BRIDGE STATION
Corporate & Legal 1. Venner Shipley 2. Osborne Clark 3. Hale & Dorr 4. Ernst & Young 5. DLA Piper 6. Davis Polk & Wardwell 7. R R Donnelly 8. BT 9. Eversheds 10. Orrick, Herrington & Sutcliffe 11. K&L Gates 12. Odgers Berndtson 13. Smith & Williamson 14. Sidley Austin 15. Baker Botts 16. Bingham McCutchen 17. White & Case 18. Debevoise & Plimpton
19. Latham & Watkins 20. Kirkland & Ellis 21. Accenture 22. Clyde & Co 23. S J Berwin 24. Berwin Leighton Paisner 25. Prudential 26. Northern & Shell 27. McDermott Will & Emery 28. Kennedys 29. Holman Fenwick Wilan LLP 30. Edward Angell Palmer & Dodge
250m
4 minutes
Bakerloo Central Circle District Hammersmith & City Jubilee Metropolitan Northern Waterloo & City DLR Overground Crossrail (service commencing May 2018)
Northern, Circle, Central, District and Waterloo & City lines Docklands Light Railway
Key to lines
RB RID GE
Banking & Financial 1. Commerzbank 2. Bank of China 3. Allied Irish Bank 4. Nomura 5. Deutsche Bank 6. JP Morgan 7. Mizuho 8. Rabobank 9. NM Rothschild 10. Aviva Investors 11. Cazenove 12. Daiwa Securities 13. VTB 14. NatWest 15. Standard Bank 16. Standard Chartered Bank 17. CIBC 18. UBS
1 minutes
Docklands Light Railway
TO WE
18. HDI Gerling Insurance 19. BMS Group 20. Markel International 21. Beazley 22. General Re 23. Swiss Re 24. Lloyd’s Register Group 25. JLT 26. Marsh Ltd 27. Lockton 28. Thomas Miller 29. Miller Insurance 30. AIG 31. Towergate
Major office occupiers in the immediate vicinity of the subject property include XL Group, Allianz, Caitlin, UBS, RSA Group, Aviva, Swiss Re, Rothschild, Nationwide and Royal London.
STATION
Bank Insurance 1. RSA Group 2. Allianz 3. ACE 4. AXA 5. Willis 6. AON 7. Aviva 8. QBE Insurance 9. XL Capital 10. Catlin 11. Hiscox 12. AXA 13. Aspen Insurance, RSA Group 14. AXA 15. Zurich Re, AXA Reinsurance, Sun Alliance and London Insurance 16. Tokio Marine Europe Insurance 17. Brit Insurance, AON
Bank Station is also within 250 metres, and the proposed new entrance on Cannon Street will be even closer. The building is also close to Cannon Street, Fenchurch Street and Liverpool Street mainline stations, the latter of which will provide access to Crossrail, Europe’s largest infrastructure project due for completion in 2018. At its completion, Crossrail will provide the only east to west rail link across central London, with connections between Maidenhead and Heathrow Airport in the west and Stratford and Canary Wharf in the east. The service will significantly improve London’s existing transport network, operating 24 trains per hour capable of carrying 1,500 passengers each.
APPROXIMATE DISTANCE FROM 33 GRACECHURCH STREET WALK TIMES
TOWER OF LONDON
THE GLOBE
Monument Station is less than 100 metres from the property and provides access to the Central, Northern, Circle, District and Waterloo & City Underground lines as well as the Docklands Light Railway.
Circle and District lines Cannon Street
350m
4 minutes
Fenchurch Street
480m
5 minutes
Mainline services to South East London, Kent and East Sussex Mainline services to East London and Essex Central, Hammersmith & City, Circle and Metropolitan lines.
Liverpool Street
750m
7 minutes
Mainline services to Essex, East Anglia and Stansted Airport Crossrail interchange (from 2018)
33 gracechurch street london ec3
DESCRIPTION
33 Gracechurch Street is an exceptionally prominent Grade ‘A’ office building, occupying an imposing site on the western side of Gracechurch Street, at its junction with Lombard Street. The property was extensively redeveloped in 2007 to provide a total of approximately 9,803.7 sq m (105,526 sq ft) of Grade ‘A’ office, retail and ancillary accommodation over subbasement, basement, ground, mezzanine and six upper floors. The Grade II listed north and north-eastern element of the façade was originally built in 1868 and was combined with a new modern façade to the south in the late 1970s to form a single building with contiguous floorplates and a new entrance to Gracechurch Street. The redevelopment in 2007 further extended the building to provide an additional floor as well as renewing the building’s internal finishes, and replacing the plant and machinery. The small element of the building which is Grade II listed provides the entire building with the significant benefit of complete exemption from empty rates. The double-height reception was entirely remodelled to a contemporary design by Morey Smith Architects in 2012 and now provides a striking entry point to the building.
33 gracechurch street london ec3
Offices The office floors provide well specified, flexible accommodation with floor plates ranging from 3,100 sq ft to 15,371 sq ft. They also benefit from a typical floor to ceiling height of approximately 2.75m combined with views over some of the City of London’s best known and most central landmarks.
Light on all floors is excellent, with the property benefiting from natural light on all four sides
33 gracechurch street london ec3
Retail The substantial return frontage on the north eastern corner of the site is ideal for the large, prominent retail unit providing approximately 1,544 sq m (16,614 sq ft) of accommodation at ground, basement and sub-basement levels. The property has 54m of frontage to Gracechurch Street, with a 37m return frontage on the busy Lombard Street, which leads to Bank Station to the west. This provides an excellent level of footfall and creates a vibrant trading environment for TK Maxx.
The corner location gives the retail unit a commanding presence overlooking the junction of three of the city’s busiest pedestrian thoroughfares
33 gracechurch street london ec3
SPECIFICATION
Accommodation
FLOOR
USE
AREA (SQ FT)
AREA (SQ M)
Sixth
Office
3,100
288.0
Fifth
Office
12,530
1,164.1
Fourth
Office
14,348
1,333.0
Third
Office
15,352
1,426.2
Second
Office
15,371
1,428.0
First
Office
15,351
1,426.1
Mezzanine
Office / Storage
1,179
109.5
Ground
Retail
9,627
894.3
Ground
Reception
1,651
153.4
Basement
Retail & Ancillary
8,082
750.8
8,935
830.0
105,526
9,803.4
Sub-Basement Ancillary
The office accommodation benefits from a high quality Grade ‘A’ specification including: • Four pipe fan coil air conditioning • Raised floors with 150mm void • Metal tile suspended ceilings • LG7 compliant lighting • Newly refurbished, double-height reception area • Male and female WCs on each floor • Four 21 person destination control lifts • One 3,000 kg goods lift
The property has been measured by independent surveyors, Plowman Craven Associates, in accordance with the 6th Edition of the RICS Code of Measuring Practice and comprises the above approximate net internal floor areas. Note - The floor areas for the ground and basement retail accommodation reflect the layout prior to alterations undertaken by TK Maxx. There is an obligation for TK Maxx to reinstate to the original layout at the end of the lease.
Typical Floorplans
Ground FLOOR 11,278 SQ FT (1,047.7 SQ M)
Third FLOOR 15,352 SQ FT (1,426.2 SQ M)
First FLOOR 15,351 SQ FT (1,426.1 SQ M)
TK MAXX
TK MAXX
LIGHTWELL
LIGHTWELL
LIGHTWELL
RECEPTION
SERVICE BAY
N
N
not to scale. for indicative purposes only.
Sixth FLOOR 3,100 SQ FT (288 SQ M)
33 gracechurch street london ec3
Tenure
Tenancies
The property is held on a modern, recently restructured head lease with an unexpired term in excess of 148 years and a 5% gearing.
The property is let to five office tenants and one retail tenant by way of eight leases at a current rent of £3,590,843 per annum.
The head lease is for a term of 150 years from 19 June 2012 with the freeholder being the Worshipful Company of Fishmongers.
The passing rent is on the basis that the vendor will top up the outstanding rent free periods and provide an 18 month rental guarantee on the vacant space.
The current head rent is £167,265 per annum. The rent is reviewed to 5% of the estimated rental value, on an upward only basis, on every fifth anniversary of the lease.
The average rent equates to approximately £34.03 per sq ft overall and the asset is now highly reversionary. The most recent open market letting at the property was the second floor, which was let in January 2012 at £43 per sq ft. In comparison the passing rents on the first and third floors which are arguably some of the best floors in the building and are let at an average rent of £31.50 per sq ft, should achieve substantial performance at review.
The plan below shows the extent of the leasehold demise. The site extends to approximately 0.53 acres.
The weighted average unexpired lease term is approximately 8.3 years to lease expiry and 4 years to tenant break options.
Not to scale. For identification purposes only. This plan is based upon an Ordnance Survey Map with the sanction of the controller of H.M. Stationery Office. Crown Copyright reserved.
33 gracechurch street london ec3
Tenancy schedule
Unit
Tenant
Sixth Floor
Clydesdale Bank plc
Area sq ft
3,100
Lease Start
Tenant Break
Lease End
Rent Review
25/07/2008
25/07/2014
24/07/2018
25/07/2013
Rent per annum
Rent psf
£151,900
£49.00
Comments
6 months’ notice on break. 6 months’ rent free if break not exercised, 3 months’ rent penalty if break exercised. This space has been sublet to Situs Realty Services Limited.
Fifth Floor
Parabis Law LLP
12,530
25/07/2008
25/07/2014
24/07/2018
25/07/2013
£616,265
£49.18
6 months’ notice on break. 6 months’ rent free if break not exercised. 3 months’ rent penalty if break exercised. Lease assigned by Clydesdale Bank plc to Parabis Law LLP on 31/01/12.
Fourth Floor
Vacant
14,348
–
–
–
–
£710,226
£49.50
18 months’ vendor rental guarantee.
Third Floor
Barbican Holdings (UK) Limited
15,352
01/02/2010
01/02/2016
31/01/2020
01/02/2015
£460,560
£30.00
9 months’ notice on break. 12 months’ rent free if break not exercised. Service charge cap – currently £13.87 per sq ft, subject to annual RPI(1). Reinstatement is in accordance with a schedule of condition. Guarantors – Barbican Reinsurance Company Limited and Barbican Group Holdings Limited.
Second Floor
Spie Matthew Hall Limited
15,371
30/01/2012
30/01/2022
29/01/2027
30/01/2017
£660,953
£43.00
6 months’ notice on break. Stepped rent of £307,420 pa from 30/04/13, rising to £614,840 pa from 31/10/14, and to £660,953 pa from 30/01/15. Vendor to provide rental top up to £660,953 pa. Guarantor – Spie SA.
First Floor
Aegis Managing Agency Limited
15,351
12/08/2010
11/08/2016
11/08/2020
12/08/2015
£505,414
£32.92
6 months’ notice on break. 12 months’ rent penalty if break exercised. Service charge cap – currently £10.27 per sq ft, subject to annual RPI(2). Guarantor – Aegis Electric & Gas International Services Limited.
Mezzanine
Vacant
1,179
Ground, Basement,
TJX UK
16,614
Pt Sub-Basement
(trading as TK Maxx)
Basement & Sub-Basement
TJX UK
–
–
–
–
16/07/2010
16/07/2020
15/07/2025
16/07/2015
£17,685
£15.00
18 months’ vendor rental guarantee.
£375,000
£22.57
Rent review is to OMV capped at 115% of the previous passing rent. Service charge cap - currently £4.15 per sq ft, subject to annual RPI(3). 12 months’ notice on break.
1,492
12/08/2011
16/07/2020
15/07/2025
12/08/2016
£7,460
£5.00
cap - currently £4.15 per sq ft, subject to annual RPI(4). 12 months’ notice on break.
(trading as TK Maxx)
Basement & Sub-Basement
Vacant
Cashpoint
Clydesdale Bank plc
Rent review is to OMV capped at 115% of the previous passing rent. Service charge
8,538
–
–
28/05/2010
–
–
–
24/07/2018
23/07/2018
£85,380
£10.00
£0
n/a
18 months’ vendor rental guarantee.
Tenant can determine on 1 month’s notice. The Landlord has the right to determine if 5th and 6th floor leases are determined.
TOTAL
105,526(5)
(1), (2), (3), (4) The 2013/14 service charge budget for the offices equates to £7.43 per sq ft – this is significantly below the service charge caps which are £13.87 per sq ft (3rd floor) and £10.27 per sq ft (1st floor). The budget for the retail is £4.00 per sq ft and for the basement £2.73 per sq ft – again, this is below the service charge cap, which is £4.15 per sq ft on both areas. Based on these figures, the caps do not result in any service charge shortfalls. (5) Includes reception area of 1,651 sq ft.
£3,590,843
£34.03
33 gracechurch street london ec3
Tenant Covenants
SPIE Matthew Hall Limited 18.4% of rental income
AEGIS Managing Agency Limited 14.1% of rental income
TJX UK
SPIE Matthew Hall Limited is a leading facilities management and building services company with an extensive UK branch network and a head office at the subject property. It was created in 2007 following SPIE’s acquisition of AMEC Building and Facility Services.
AEGIS Managing Agency Limited is the UK-based subsidiary of AEGIS (Associated Electric & Gas Insurance Services) Limited, which is the mutual insurer to the utility and energy industry in the US and Canada. AEGIS London is the trading name of AEGIS Managing Agency Limited, and it acts as the Lloyd’s underwriting agent for AEGIS Syndicate 1225, which has a capacity of £310 million for 2013.
TJX UK is the UK subsidiary of TJX Corporation Inc and operates under the trading name of TK Maxx. TK Maxx was launched in 1994 and is Europe’s leading off-price retailer of apparel and home fashions. As at the end of 2012, TK Maxx was trading from 343 stores in the UK, Ireland, Germany and Poland.
For the year ending 31 December 2011, SPIE Matthew Hall Limited reported a turnover of £263.8 million, a pre-tax loss of £23 million and a net worth of minus £6.63 million. The lease is guaranteed by SPIE SA, the ultimate holding company, which is a limited liability company incorporated in France. SPIE SA has more than 29,500 employees working from 400 locations in 30 countries. In 2012 SPIE SA reported a turnover of ¤4.22 billion and earnings before interest and taxation of ¤242.9 million. www.spiematthewhall.com Parabis Law LLP 17.2% of rental income Parabis Law LLP was established in 2006 following the earlier combination of three smaller legal firms in 2002. The company specialises in claimant and defendant insurance work, operating through the brands Plexus Law and Cogent Law. In the year to 31 March 2012, the LLP, which employs 1,184 people, reported a turnover of £130.0 million, a pre-tax profit of £21.4 million and a net worth of £24.59 million. Parabis Law LLP forms part of the Parabis Group, which also provides a range of non-legal insurance services from loss adjusting and rehabilitation to risk management. The group is approximately 50% owned by Duke Street Capital. In May 2013, it was announced that the Plexus Law subsidiary is going to merge with Greenwoods, an insurance dispute resolution firm. It is reported that this will increase the turnover of Parabis Law LLP to £150m, which would place it just outside the UK Top 20 legal firms. (Source: Legal Week) www.parabisgroup.co.uk
For the year ending 31 December 2012, Aegis Managing Agency Ltd reported a turnover of £14.0 million, a pre-tax loss of £1.4 million and a net worth of minus £1.45 million. The lease is guaranteed by Aegis Electric & Gas International Services Limited, who, as at 31 December 2012, reported a pre-tax profit of £42.4 million and total assets of £841.8 million. www.aegislink.com Barbican Holdings (UK) Limited 12.8% of rental income Barbican Holdings (UK) Limited forms part of the Barbican Group, which is an insurance and re-insurance business which trades at Lloyd’s as Barbican Syndicate 155, with a 2013 capacity of £210m. Barbican’s London operations provide specialist expertise in property, casualty, professional risks and marine classes, in retail, wholesale and treaty markets. Turnover for Barbican Holdings (UK) Limited in the year ending 31 December 2012 was £500,000, with a pre-tax profit of £114,000 and a net worth of £214,000. The lease is guaranteed by Barbican Reinsurance Company Limited and Barbican Group Holdings Limited. Further information is available on request. www.barbicaninsurance.com
10.7% of rental income
For the year ending 28 January 2012, TJX UK reported a turnover of £1.354 billion, a pre-tax profit of £35.4 million and a net worth of £370.6 million. www.tjx.com Clydesdale Bank Plc 4.2% of rental income Clydesdale Bank was established in Glasgow in 1838 and now operates a UK-focused retail and commercial banking business under the brand names “Clydesdale Bank” and “Yorkshire Bank”, primarily in Scotland and the north of England. The Bank has 330 retail branches, 44 Business & Private Banking Centres, and employs 4,591 staff (as at March 2013). In 1987, Clydesdale Bank plc became a member of National Australia Bank Group (NAB). NAB has over 7.7million banking customers and 2.3 million wealth management customers. As at 31 March 2013, Clydesdale Bank plc reported a pre-tax profit of £22 million for the previous six months and a net worth of £2.604 bn. www.cbonline.co.uk/about-clydesdale-bank
33 gracechurch street london ec3
Head lease summary
Landlord The Wardens and Commonalty of The Mystery of the Fishmongers of The City of London. Demise Land and buildings at 33 Gracechurch Street, 39-40 Lombard Street, 26 Gracechurch Street, 2 Lombard Court and Grass Court. The demise includes vaulted basements beneath the highways abutting the premises but excludes the airspace above 55m above Ordnance Datum. Term 150 years from 19 January 2012. Rent Initially £162,500 per annum but increased to £167,265 per annum to reflect the letting of the second floor (in accordance with the provisions of a Supplemental Deed dated 19 January 2012). If the vacant mezzanine or fourth floors are let before 19 January 2017 the head rent will increase by 5% of the amount by which the annual average headline rent on these lettings exceeds £35 per sq ft. Rent Review Every fifth year the rent is reviewed on an upward only basis to 5% of the Estimated Rental Value (ERV) of the building. The ERV is the annual rent at which the premises (with all improvements, alterations and additions thereto) would reasonably be expected to let (as a whole or in parts on a floor by floor basis) between a willing landlord and a willing tenant on terms and conditions likely to be negotiated in the open market (allowing for good market practice). Any effect on rent of the occupation by the Tenant or sub-tenant is disregarded, as is goodwill and the occupational tenant’s fit-out. Permitted User As offices within Class B1 or any use within Class A1, A2, A3, A4 or A5 of the Town and Country Planning Act 2005. Repair Tenant to keep the premises in good and substantial repair and condition and replace and renew as necessary.
Redevelopment Landlord’s prior written consent required for Redevelopment, such consent not to be unreasonably withheld or delayed. The Landlord can withhold consent if the Tenant has not demonstrated, to the Landlord’s reasonable satisfaction, that: a) the proposed Redevelopment is viable; b) the Tenant has the financial resources (including bank or third party financing) to carry out the redevelopment diligently and without delay; and c) vacant possession can be secured within a reasonable period (not more than 24 months). If the Redevelopment extends beyond the limit of the airspace of the demise, the Landlord cannot withhold consent for this reason if the proposed Redevelopment is not more than 5% greater than the existing floor area of 105,526 sq ft. In this event, the Landlord and Tenant shall use reasonable endeavours to enter into a supplemental lease of the additional airspace on the same terms as this lease for nil premium. Furthermore, the rent review will operate such that the enlarged building will be considered as a whole at the next and each subsequent review. Alterations The Tenant shall not make structural alterations, or alter the external fabric or appearance of the building without Landlord’s consent, which is not to be unreasonably withheld or delayed. The Tenant can make internal non-structural alterations without requiring Landlord’s consent. Insurance The Tenant is to insure the Property and all plant and machinery (provided such insurance is readily available, on reasonable terms, in the London Insurance market) against the Insured Risks in the full rebuilding and re-instatement cost; at least three years loss of rent; and public liability and property owner’s risks.
Re-entry The Landlord has the right to re-enter, pursuant to an Order of Court, if the Principal Rent is in arrears for 21 days after it is due, or in the event of any material breach of covenant, if it continues for 30 days after notice has been provided to the Tenant and/or Guarantor. However, a registered mortgagee or chargee has step-in rights and notice must be served on them giving them a reasonable opportunity (which shall not be less than 40 Business Days) to remedy the breach. Alienation Assignment Not to assign or charge part only of the Premises. Assignment of the whole is permitted with Landlord’s consent not to be unreasonably withheld. Underletting Underletting of the whole or part is permitted without Landlord’s consent except during the last 10 years of the term (when consent is required). Underlettings are to be in accordance with the principles of Good Estate Management upon such terms and conditions as shall accord with good market letting practice. Sublettings are not to be for a fine or premium. Good Estate Management means the proper and efficient commercial management of the premises having regard to the best commercial interests and the long term investment value of both the Landlord’s and Tenant’s respective interests. This provides the Tenant with a good degree of flexibility in their dealings with new underlettings, lease surrenders, regearing etc.
33 gracechurch street london ec3
Market commentary
• City office take-up has reached its highest level since 2007 • The vacancy rate for new and refurbished space in the City core stands at only 3.1% • Rental growth of 33% is forecast by the end of 2018 • Active tenant requirements for the City of 4 million sq ft • Limited pipeline of speculative development Take up of offices in the City of London during the second quarter of 2013 reached 2.4 million sq ft. This is the highest quarterly take up of space since 2007 and more than double the last quarter. Quarterly take up at this level is equivalent to 24% of the total space currently available in the City core market. Quarterly Take up 3.0
The City market has recently benefited from its growing profile as a technology and media hub, as well as renewed activity by financial and insurance firms. In July this year, News International acquired 430,000 sq ft at The Place, London Bridge Quarter which will help boost the figures for the third quarter. Other major deals from the TMT sector included Amazon taking 212,000 sq ft at 60 London, Holborn Viaduct and Publicis Groupe taking a total of 155,600 sq ft at 40 Chancery Lane and 63 Clerkenwell Road. Annual Availability and Take up 18
16 14 million sq ft
Occupational Market
10 8 6
1.0 0.5
2013
2011
2012
2010
2008
2009
2007
2006
2005
2004
2002
2003
2001
2000
1998
1999
5.71%
Availability
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13
Take up
Availability of office space fell from 10.4 million to 10.1 million sq ft during the second quarter representing a total vacancy rate of 8.6%, but only 3.1% in respect of new or refurbished space. This is now below the long term average total vacancy rate of 10% for the City.
Take up
Development Pipeline 5
Long-term average new &refurbished take-up = 3.2 m sq ft
4 million sq ft
million sq ft
0
Long-term average = 1.6 m sq ft
1.5
0.0
2013
2
2.0
Active requirements for City space currently stand at 4 million sq ft, an 18% increase on the previous quarter. This is particularly encouraging given the high levels of take up and suggests there is potential for take up to continue to improve. The Investment Property Databank are currently forecasting rental growth of 33% in the City by the end of 2018 as follows:
12
4
2.5
The development pipeline remains very restricted, with only 2.2 million sq ft of speculative office space under construction within the City core and due for completion over the next two years. In the context of the current levels of take up, this is an insufficient level of supply to keep the market in balance and will begin to create competition between tenants for the better space in the core.
3 2 1 0 2007 2008 2009 2010 Completed
2011
U/C Pre-let
U/C – Speculative
2012
2013
Pipeline Pre-let
Pipeline – Speculative
2014
2015
2016
2017
2014 6.89%
2015 6.66%
2016 5.77%
2017 5.50%
2018 4.69%
Investment Market The second quarter of 2013 recorded investment turnover of £1.7 billion for the City market, a 56% increase on the previous three months. The majority of these transactions were located within the core of the City where liquidity is maximised, and the nine largest transactions of the quarter all involved overseas purchasers. Availability of investments on the market remains very limited, particularly in the City core, with most owners now looking to benefit from the improving occupational market conditions and the forecast rental growth. Whilst the market has been dominated by overseas investors in recent times, there is a growing number of UK institutions and property companies becoming active, particularly for investments of less than £100 million.
Recent leasing transactions: PROPERTY
TENANT
AREA (SQ FT)
REPORTED RENT (PER SQ FT)
35 King Street, EC2
Tikehau
1,909
£61.50
20 Gracechurch Street, EC3
Strutt & Parker
5,045
£57.50
80 Cheapside, EC4
Japan Bank
6,717
£57.50
110 Cannon Street, EC4
Source UK Services
5,753
£57.50
1 Paternoster Square, EC4
Gateley
16,270
£55.00
St Paul’s House, Warwick Lane, EC4
Co-operative Group
35,669
£54.00
40 Gracechurch Street, EC3
i2 Office Group
13,642
£52.50
Citypoint, EC2
Willkie, Farr & Gallagher
12,783
£52.50
5 Aldermanbury, EC2
BNP Paribas
15,829
£52.00
Key recent investment transactions: ADDRESS
COMMENTS
PURCHASER
40 Gracechurch, EC3
REPORTED PRICE
£94m (£770psf)
NET YIELD
2.25%
Long leasehold. Developed in 2010. c.40% let by floor area with no rental top ups.
Cornerstone
30-34 Moorgate, EC2
£15.4m (£549psf)
4.60%
Freehold. 1980s building - unrefurbished. Let to Lloyds until December 2014.
Royal London AM
10/11 Austin Friars, EC2
£11m (£645psf)
5.00%
Freehold. Part refurbished. Multi-let to 6 tenants.
Private investor
95 Gresham Street, EC2
£88m (£832psf)
5.10%
Long leasehold. Refurbished in 2010. c.84% let by floor area. 18 month top up on vacant space.
DEKA
90 Queen Street, EC4
£61 m (£891psf)
5.39%
Freehold. Developed in 1996. Fully let until 2020/21.
Warburg Henderson
The Retail Market Retail rents across Central London are seeing upwards pressure as a large number of international retailers target the capital with major new requirements and the wider economy continues to recover. The quantity of good quality space is generally limited, with any available units quickly taken up, often with competitive bidding. This is particularly the case in the City, where some micro-locations have availability rates of less than 2%. Recent data shows that retail rents were up by almost 5% over the first half of this year. Further rental growth is forecast, with Knight Frank Research forecasting close to 4% annual rental growth for the next five years. In light of the above, investment demand for prime assets from a diverse group of investors is currently particularly strong. Although few standalone retail units trade in the City of London, the sale of 38 Walbrook, London EC4, let to Starbucks for only 4.25 years, to a private investor for a price reflecting a 4.55% net initial yield, demonstrates the demand for these assets.
Proposal
We are instructed to seek offers in excess of £61,100,000, subject to contract and exclusive of VAT, reflecting a net initial yield of 5.5%, after deduction of purchaser’s costs of 1.80%, and a capital value of £579 per sq ft.
Further information
Contacts
VAT The property has been elected for Value Added Tax (VAT), and VAT will therefore be payable on the purchase price. However, it is anticipated that the sale will be treated as a Transfer of a Going Concern (TOGC). Capital Allowances The benefit of unclaimed capital allowances may be made available to the purchaser by separate negotiation. Further information is available on request. SPV The property is held in a Jersey Property Unit Trust.
Nick Braybrook Knight Frank LLP nick.braybrook@knightfrank.com +44 (0) 20 7861 1309 +44 (0) 7789 878 010
Nigel Fox Capital Real Estate Partners nfox@capitalrep.co.uk +44 (0) 20 7367 5723 +44 (0) 7768 106 804
Andrew Harrison Knight Frank LLP andrew.harrison@knightfrank.com +44 (0) 20 7861 1333 +44 (0) 7795 316 020
Michael Regan Capital Real Estate Partners mregan@capitalrep.co.uk +44 (0) 20 7367 5728 +44 (0) 7771 513 148
Will Stebbings Knight Frank LLP will.stebbings@knightfrank.com +44 (0) 20 7861 1091 +44 (0) 7900 150 186
Ross Davies Capital Real Estate Partners rdavies@capitalrep.co.uk +44 (0) 20 7367 5727 +44 (0) 7939 228 409
Important Notice 1. Particulars: These particulars are not an offer or contract, nor part of one. You should not rely on statements by Knight Frank LLP and Capital Real Estate Partners in the particulars or by word of mouth or in writing (“information”) as being factually accurate about the property, its condition or its value. Neither Knight Frank LLP nor Capital Real Estate Partners has any authority to make any representations about the property, and accordingly any information given is entirely without responsibility on the part of the agents, seller(s) or lessor(s). 2. Photos etc: The photographs show only certain parts of the property as they appeared at the time they were taken. The brochure contains some historic photography. Areas, measurements and distances given are approximate only. 3. Regulations etc: Any reference to alterations to, or use of, any part of the property does not mean that any necessary planning, building regulations or other consent has been obtained. A buyer or lessee must find out by inspection or in other ways that these matters have been properly dealt with and that all information is correct. 4. VAT: The VAT position relating to the property may change without notice. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names. Capital Real Estate Partners is a limited liability partnership (registered in England and Wales number OC350483). A list of names of members of Capital Real Estate Partners LLP and their respective qualifications may be inspected at our registered office, 1 Paper Mews, 330 High Street, Dorking RH4 2TU. October 2013 (Designed and produced by Sutton Young SYO50703)