investment market 2010

The second half of 2010 saw an upturn in gross initial yields in Midtown, City and Docklands in line with wider national trends (Figure 3 and Table 4). With prices eroded by 2% and rents increasing by 4%, gross initial yields for a typical one-bedroom flat increased by 30 basis points from 5.3% to 5.6%. This followed a more modest rise in yields of 0.1% points in the first half of 2010, which was exclusively driven by rental growth. The last time yields were at this
level was in 2008, but the context then was very different – rent levels were falling and the adjustment in yields resulted from a steep fall in capital values.

There was one significant bulk purchase in Clerkenwell in the second half of 2010 at 156 St John Street, EC1. Here the head lease of 48 private units in a single block was put on the market by the receiver to the development in September 2010, inviting offers in excess of £20 million. By November the building was under offer to a single investor after significant interest from a number of parties. The purchaser intends to put the units into the rental market.

One market segment which did see significant investment activity in Midtown, City and Docklands in 2010 was the specialist serviced apartment canary wharf sector. These investments are typically underpinned by ten year leases where the base rent is equivalent to what would be achieved through AST lettings of the units. Demand from serviced operators has increased in line with the accommodation needs of major corporates seeking to accommodate staff for periods up to three months. As a result operators have been targeting individual units as well as whole blocks and this has underpinned the sale of individual investments – in some cases in the Far East.