Hammerson has sold most of its City offices to Brookfield Office Properties, a US real estate investment trust (Reit). The £518m deal marks the symbolic end of a boom-and-bust era for the UK property company, which has been trying to lower its risk profile after a disastrous credit crunch.
Chief executive David Atkins unveiled his decision to sell off the London office portfolio to become a pure retail Reit at the February annual results . "London offices are very volatile," he told Investors Chronicle. "We have talked about timing the London office cycle, but the brutal truth is that no one can forecast the UK office market. You can make money out of it for a bit, but the likelihood is you'll lose money at some point."
The assets being sold to Brookfield include 99 Bishopsgate, one of the company's top 10 properties, and Principal Place, an as yet vacant development scheme just north of Liverpool Street station. Hammerson had been in talks to pre-let Principal Place to CMS Cameron McKenna, but the law firm pulled out in January "as a result of current uncertainties in financial markets".
This is typical of the current lettings market. City office take-up was the lowest last year since 2003 and shows no immediate sign of improving. Meanwhile, towers are shooting up around the Lloyd's insurance building. Land Securities and Canary Wharf Group are due to complete their 'Walkie Talkie' joint venture at 20 Fenchurch Street in spring 2014. A few months later, British Land and Oxford Properties will open the 'Cheesegrater' on Leadenhall Street. Land Securities has just announced its first pre-let deal at the Walkie Talkie after months of anticipation - Markel, another insurer, will take 8 per cent of the space.
But the amount of speculative development in the City remains 37 per cent ahead of the long-term average, reports property broker Jones Lang LaSalle. Developers are betting that the lettings market will bounce back with pent-up demand just in time for their projects to complete, and that's still the base case most brokers predict. But if events prove them wrong, shareholders could lose a lot of money - a risk Hammerson was no longer prepared to take.
