Kennedy Wilson Buys UK Office Campus

The Heights. Image courtesy of Kennedy Wilson

Global real estate investment company Kennedy Wilson is expanding its U.K. holdings with the acquisition of The Heights, a 348,000-square-foot institutional-quality office campus with five buildings across 25 acres in the London submarket of Weybridge. Kennedy Wilson and an unidentified equity partner paid £136 million, or approximately $179 million, for the property, reflecting a cap rate of 7.1 percent.

The Beverly Hills, Calif.-based Kennedy Wilson owns 51 percent of the ownership interest in the property. The partnership invested £64 million, or about $84 million, of equity in the off-market transaction. The Heights is currently 97 percent occupied, with a weighted average lease term of 4.8 years and rents below current market rates. Corporate tenants include Alliance Boots, AXA, Samsung, Royal Caribbean Cruises and PGS Exploration.

The office campus is located near a main highway, M25, which connects to Heathrow and Gatwick airports. It also has train service to Central London.

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Mike Pegler, head of U.K. for Kennedy Wilson, said in a prepared statement the acquisition offered an opportunity to recycle proceeds from recent U.K. sales into a top-tier office asset in one of Greater London’s strongest office markets where vacancy rates are less than 5 percent. Pegler added The Heights will be part of Kennedy Wilson’s long-term U.K. portfolio, where the firm can improve NOI through planned capital and asset management.

Mary Ricks, president of Kennedy Wilson, noted in the third-quarter earnings call that the company had a solid leasing quarter across Europe, including in the U.K. The firm, which also owns assets in Ireland and Spain, has seen stabilized occupancy of 96 percent at its commercial properties, she said in a published transcript of the conference call with analysts. She noted healthy occupier dynamics in central London continued in Q3 with absorption increasing 11 percent to 3.4 million square feet. Ricks pointed to a new 10-year lease that was signed with St. Peter Group at its Towers Business Park, a 289,000-square-foot campus in Manchester. She also noted the Southbank submarket, where the firm’s Friars Bridge Court asset is located, had a 2.2 percent vacancy rate, the lowest of any London suburb.

Kennedy Wilson signed a lease with WeWork in November 2018 for 41-45 Blackfriars Road, an eight-story building in Friars Bridge Court. It was one of the largest European deals for Kennedy Wilson and also one of the largest leases in the Southbank market last year.

Strong Office Market

Despite ongoing concerns about Brexit and the U.K. General Election scheduled for Thursday, Dec. 12, London is still one of the strongest office markets in Europe. London was the top city in the latest European Regional Economic Growth Index released in October by LaSalle Investment Management. The city took the top spot for the 11^th time since 2000 and for the third year in a row based on future real estate occupier demand. However, that ranking is based on the U.K. exiting the European Union with a deal by March 2020. LaSalle noted a no-deal Brexit would hurt the rankings.

In the meantime, the city has been seeing healthy leasing, according to The London Office Market Report Q3 from Knight Frank Research. According to the research, businesses are more concerned about lack of office space in the market than the political background noise and are committing to new leases at a steady rate. Knight Frank Research reports office leasing reached 3.4 million square feet during the third quarter, in line with the 10-year average and higher than both Q2 2019 and the same period last year.