£1.1bn HSBC deal seals capital's status as property market leader

The global banking giant HSBC pulled off the UK's largest-ever commercial property deal yesterday, selling its London headquarters for a record £1.1bn to the Spanish property group Metrovacesa.

The bank also sealed an agreement to lease back the Docklands tower block for the next 20 years at an annual rent of £43.5m - giving the Spanish investors an initial yield of just 4 per cent on their investment.

Recent large deals in the UK commercial property sector have yielded in the region of 4.5 to 5 per cent. It is believed the company was willing to accept the lower yield due to the high profile of the property.

The company said it aims to become one of the world's leading real-estate investors.

HSBC also secured an option to extend its lease for an additional five years at the end of the 20-year term. However, Metrovacesa, which is believed to have beat some 14 other bidders to secure the deal, has a 998-year lease on the property.

The sale of the 210-metre tower block locks in an investment return of more than 100 per cent for HSBC, which spent some £500m building the skyscraper at the turn of the millennium. The company moved into the building in 2002, and now has some 8,000 staff working in the block.

Metrovacesa's purchase shatters the recent record for UK commercial property deals, which was set only last month when Beacon Capital Partners, the US real estate investment group, snapped up Citypoint for £650m at a yield of 4.85 per cent.

Citypoint is one of the largest office blocks in the City of London, housing a number of offices, as well as a gym, shops, bars and restaurants.

The HSBC sale is the latest in a string of large commercial property deals in London over the past year. The investment banking group Evans Randall bought Sir Norman Foster's "Gherkin" - home to Swiss Re's UK headquarters - for £630m in February.

Tony McCurley, an executive director at CB Richard Ellis who worked on the sale of the HSBC tower, said a large number of investors were looking to gain a foothold in the London property market. "There's a huge amount of capital trying to buy in London at the moment, and it's coming from a very broad spread of investors," he said. "So the market's not dependent on any particular sector. In the first quarter of 2007, 60 per cent of commercial property deals were done by overseas investors." Mr McCurley said investors were attracted to London because it was a "safe haven", adding that analysts believed rents would continue to rise considerably over the next few years.

Marcus Langlands-Pearse, a property fund manager for New Star, said: "There were big uplifts in City of London and West End rents last year, and we're expecting to see uplifts of between 13 and 14 per cent again this year. It's purely down to supply and demand. London is taking over as the financial capital of the world and that's providing a massive demand for office space."

Several other high-profile London properties are expected to be sold over the next few months. The sale of Shell's headquarters in Waterloo, estimated to be worth around £520m, recently fell through for a second time.

However, it is thought the company is still seeking a buyer.

The American investment banks Merrill Lynch and Goldman Sachs are also currently seeking buyers for their London headquarters, both thought to be worth in the region of £600m. Aviva is also believed to be looking to sell its £400m headquarters opposite Lloyd's of London.

The UK's largest commercial property deals

HSBC HQ

* Year: 2007
* Address: Canada Square, London E14
* Corporate occupier: HSBC
* Transaction type: Sale and leaseback
* Purchaser: Metrovacesa
* Term: 20 years
* Capital value/yield: £1.1bn/4.0%

Citypoint

* Year: 2007
* Address: Ropemaker Street, London EC2
* Corporate occupier: Multiple occupiers
* Transaction type: Sale and leaseback
* Purchaser: Metrovacesa
* Term: 20 years
* Capital value/yield: £1.1bn/4.0%

'The Gherkin'

* Year: 2007
* Address: 30 St Mary's Axe, London EC3 (below)
* Corporate occupier: Swiss Re
* Transaction type: Sale & Leaseback
* Purchaser: Evans Randall and IVG Immobilien AG
* Term: 24 years
* Capital value/yield: £630m /4.5%

Plantation Place

* Year: 2006
* Address: Plantation Place,
London EC3
* Corporate occupier: Multiple occupiers including Accenture and Royal & SunAlliance
* Transaction type: Investment sale
* Purchaser: Consortium including Tishman International and Insight Investment
* Term: N/A
* Capital value/yield: £527m/5.1%

The Adelphi

* Year: 2006
* Address: Strand, London WC2
* Corporate occupier: Multiple occupiers
* Transaction type: Investment sale
* Purchaser: Istithmar
* Term: N/A
* Capital value/yield: £300m/5.0%