London Office Sales Shelved in Bet on Higher Property Prices

Investors in London’s office market have been desperately hoping for signs of improvement. Moves to pull two heavily discounted deals to bet on a price recovery may provide them.

Sales processes for 20 Old Bailey in London’s city and 5 Churchill Place in the docklands district were both shelved this month، according to people familiar with the processes.

Scrapping deals

Mirae Asset Management was in late stage talks to sell 20 Old Bailey for 30% less than it paid for the building with a buyer lined up with an offer of £240 million. The Korean investor scrapped the deal as it plans to refinance the block and wait for the market to improve، some of the people said، asking not to be identified as the details are private.

Further east in London’s Canary Wharf district، a deal to sell 5 Churchill Place، a 14-year-old block originally built for Bear Stearns، to an Israeli investment firm has also been withdrawn، some of the people said. The building was seized by lenders including Lloyds Banking Group Plc last year after China’s Cheung Kei Group defaulted on its debts.

The two stalled sales are a sign of the stultified nature of London’s office markets amid higher interest rates and concerns around a trend toward hybrid working. Investment volumes for central London offices were the lowest since 2009 last year، according to a report from broker Jones Lang LaSalle Inc. While canceled deals show the current challenge of selling such buildings، it’s also a sign that some sellers are willing to hold on with interest rates expected to move lower later this year.

The likelihood of lower rates is giving some borrowers comfort. Mirae and its investors financed the 2018 purchase of 20 Old Bailey with a £200 million loan from Dekabank. While they had been under pressure to sell because because of a struggle to refinance، that has since eased on rising market confidence that rates will soon fall.

The highest vacancy rates

Mirae had been negotiating to sell the building but decided against doing so as the firm expects the market for such assets to improve، according to a spokesperson for asset manager.

In Canary Wharf، one of the districts in the UK capital with the highest vacancy rates، the sales process for 5 Churchill Place was also withdrawn. The building was one of two taken over by lenders last year، with receivers from FTI Consulting appointed to help recover on the loan.