London’s Southwark Council have agreed to purchase their own office for £150m, despite interest from overseas investors.
The offices at 160 Tooley Street – only a stones’ throw from The Shard – is set to be bought by the council from HSBC Private Bank, representing a yield of approximately 5%.
Whitmarsh Holt Young, the agent for the property, has seen substantial interest from overseas investors since the 205,236 sq ft building was put on the market in November.
The council released a report this week stating that it has now lodged a formal offer, which is expected to be approved by Friday following consultation on Wednesday.
“Subject to the criteria of the business case presented within this report, a provisional offer was submitted on behalf of the council but conditional upon formal consent of the council’s cabinet. The offer has been accepted subject to exchange of contracts on or before the 14 December 2012, if cabinet is agreeable.”
The council, who were headquartered at the office until earlier this year, are expected to make the purchase out of internal funds, with the report outlining the rationale behind the deal.
The report states: “We currently pay £7.7m each year in rent on our council headquarters at 160 Tooley Street, and this figure is likely to increase through rent reviews,” “The terms of our lease continue to 2033, without a break clause.
“If the council decides to buy the building it will both reduce its annual costs in these difficult financial times and gain ownership of an important asset for the council. Owning the building also increases the flexibility we have in how we use it.”
“The decision of the owners of the building to sell it has therefore presented the council with a unique opportunity. The choice we have is analogous to someone renting their home being offered the opportunity to buy it for a mortgage that costs less each month than the rent.
With public concern growing over the hike in residential property prices in the capital due to overseas investment, the report goes as far as to say that the current purchase would represent the council’s only opportunity the purchase the property before it is likely to kept as an asset in the ‘safe haven’ of the UK market.
It states: “There is limited knowledge with the council of the competing prospective bidders, but they are believed to be predominantly middle or far Eastern investment concerns. They would be expecting to find a ‘safe haven’ for cash in a UK based asset, or an investment fund with exposure to institutional property.
“Regarding this second class of prospective purchaser, it should be noted that once properties come to be held within investment funds it is rare for them to be traded on with any degree of frequency. As a result there is a reasonable likelihood that this will be the first and only opportunity the council will have to buy the freehold.”
The report finished with an optimistic appraisal of the capital’s property market, noting that “demand for UK property, and particularly central London, offices, remains very buoyant despite the current economic climate. Current indicators suggest that this is set to continue.
