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Blackstone to sell Broadgate stake

The London office market continues to thrive, but some investors now see scope for higher returns in the regions
August 30, 2013

The Singapore sovereign wealth fund is reported to be buying half of the Broadgate office estate in the City of London for £1.7bn in what is set to be the largest single property deal in UK real-estate history. The seller is Blackstone (US:BX), the US private equity group, which bought its stake in the 15-building City complex for £1.07bn in September 2009. British Land (BLND), the real-estate investment trust that pieced Broadgate together in the 1990s slump, controversially offloaded its 50 per cent stake to reduce its debt load at what turned out to be the trough of the property crash.

Its return to the market four years later is emblematic of the recovery of central London real estate since the financial crisis. Even after capital expenditure on a new office for UBS, Blackstone's highly geared equity investment is said to have ballooned by a multiple of four.

But the deal may also mark a shift in some investors' focus away from the safe haven of prime central London towards more distressed markets in the UK regions and continental Europe. Blackstone continues to pick up offices in London, but it is also rumoured to be buying the St Enoch shopping centre in Glasgow for £190m - more than the initial asking price but still a steep discount to its boom-time value and less than replacement cost, reckons Simon Blake, UK head of capital markets at property broker CBRE.

Investor appetite is also returning for offices in the big regional cities. Robert Boag, manager of the £825m UK Commercial Property Trust (UKCM), reports that a Birmingham block recently sold at a rental yield of 5.8 per cent, implying a much higher price than expected. "These yields haven't been seen for some time," he notes. One company set to benefit from this trend is Bruntwood, which owns about a fifth of the offices in central Manchester. It is a family-owned company, but recently issued a secured retail bond with a 6 per cent coupon that looks low-risk given the prospect of rising valuations.