Banking on it?

July has arrived, but the traditional summer slowdown in dealmaking is yet to make itself seen. This week alone, major new JV tie-ups between Segro and PSP, and The Crown Estate with Lendlease, have shown the importance of forging new partnerships in a market where spotting opportunities is somewhat easier than actually delivering them. For Segro, its £2.9 billion new venture is a nice riposte to Prologis' rejected bid for the business last week, while The Crown Estate has spotted a way of moving into new areas now that its borrowing restrictions have been eased by new legislation.

But if it was a straightforward real estate deal you were looking for this week, there was one standout: Barclays acquisition of a 999-year lease on its Docklands HQ from Canary Wharf Group for £750 million. One Churchill Place, totalling around a million sq ft, has been home to Barclays since 2005, with the lease extended to 2039 three years ago. The buy provides Barclays with long-term certainty in a prime office market that remains short on supply, and paves the way for the banking group to invest further in creating a workspace that better meets its current and future needs.

Barclays' history at the building shows some smart dealing all round. Its lease renewal in 2023 took advantage of subdued interest to land at around £40 per sq ft, something that would've impacted on the building's value now that the occupier demand has since recovered somewhat. Back-of-a-packet sums suggest it has bought at the equivalent of just over 5% - towards the top end of current pricing, but on a market rent of £55-£60 the building would see a significant uplift in value.

For anyone that has been knocking around real estate as long as Big Picture, the deal will inevitably bring back memories of the back-and-forth dealings for the neighbouring HSBC building at 8 Canada Square. Developed by HSBC itself for around £500m, opening in 2002, the building was the UK's first property to change hands for more than a billion when Metrovacesa stumped up £1.1 billion at the height of the market in 2007. In 2008, HSBC bought it back for £838 million, before selling it a year later to South Korea's National Pension Service for £772 million in another sale-and-leaseback; despite the fall in capital value in that time, the agreed rent meant HSBC had booked a reported accounting gain of ~£350 million in its dealings.

The Korean NPS did nearly as well - when it sold the asset to the Qatar Investment Authority in 2014, the price wasn't announced but was believed to be near to the £1.1 billion seen in 2007. HSBC is leaving Docklands for the City of London when its lease expires next year; the QIA, meanwhile, is looking at one of the UK's largest office redevelopment projects for the asset.

There are perhaps a couple of things the wider real estate sector can take away from the Barclays deal (and, indeed, HSBC's trading of its HQ). Firstly, it is a neat reminder of how closely-linked real estate and finance are, and the inherent capabilities banks have in identifying opportunities when the cost of money and yields start to diverge. Such occupiers hold a distinct advantage as buyers, in knowing that a successful acquisition may increase their debt liabilities, but reduces their rental bill by a commensurate amount.

But more than that, Barclays' move shows the way major corporates are thinking in a prime office market that is increasingly tight. The finances may stack up nicely for the bank, but it seems the driving factors behind this acquisition are the long-term certainty and the ability to shape a workplace to exactly what they require. If securing the space you need is increasingly difficult, or at the very least requires leasing commitments that are both long-term in nature and agreed far in advance, the risk associated with owning the building yourself becomes comparatively less.

Office occupiers in particular are constantly weighing up the relative merits of flexibility and certainty. In prime markets at least, the dial has moved towards certainty; for owners and investors in traditional office assets, that is a move that spells opportunity.