City of London fails to score a single £100 million office deal

City of London stock

London’s historic financial district is on the cusp of notching a grim record: the City’s office market has failed to register a single deal for more than £100 million in the first half of the year — the first time that’s happened in a quarter century.

The dire stat reflects the realities of a district known for its vast office towers and corporate headquarters at a time when traditional buyers of big-ticket properties are nowhere to be found. Instead, the anemic activity that is taking place is for smaller properties — those well under £100 million mark — that can be comfortably swallowed by private capital.

In a typical year, the City registers 14.5 deals greater than £100 million, according to data compiled by CoStar Group Inc. for Bloomberg News. That’s based on data going back to 1997, a timespan in which there has never been a first-half period without a deal of that size, the data show. The last time any half-year period failed to include such a deal was the second half of 1999.

“The reluctance to commit large sums of capital also reflects concerns about the health of the office-occupier market,” Mark Stansfield, senior director of UK market analytics at CoStar, wrote in an email. Office vacancies in the City are sitting at a two-decade high of 11.8%, up from 5.5% five years ago, he said. “The upcoming general election has also forestalled deals in recent weeks as buyers wait for greater political stability.”

The large-deal drought could end soon, with talks underway for deals topping £100 million. Funds managed by Royal London Asset Management are in exclusive negotiations to buy Atlantic House, which is being sold for about £180 million, and a number of bidders are looking to acquire Herbal House, a building in receivership that could trade for just north of £100 million, people with knowledge of those sales processes said. A spokesperson for Royal London Asset Management declined to comment.

But the lack of big sales so far this year reflects the extent to which the rapid rise in interest rates, coupled with concerns about the future shape of office demand and rising environmental regulation, have combined to stymie dealmaking for trophy properties. Even in 2023 — the worst year for overall City transactions in two decades — 10 deals for more than £100 million were completed, CoStar figures show.

The dearth of appetite for larger offices is also starting to weigh on pricing, with smaller buildings trading for much higher multiples of their rent than larger ones, upending a market norm that persisted for six years through 2022, according to a separate analysis by CoStar. UK office properties larger than 20,000 square feet (1,900 square meters) sold for an average 14% discount to their asking price, double the level for smaller properties, the firm’s data show.

And the deal drought also is weighing on construction, with the One Leadenhall skyscraper that’s being built by Brookfield Properties likely the last office tower to be completed in the district for about three years.

Register now for one of the Evening Standard’s newsletters. From a daily news briefing to Homes & Property insights, plus lifestyle, going out, offers and more. For the best stories in your inbox, click here.