HSBC set to open its Docklands door to £1bn buyerJames Rossiter, Property Correspondent

HSBC set to open its Docklands door to £1bn buyerJames Rossiter, Property Correspondent
HSBC is expected to announce an overseas buyer for its £1 billion Canary Wharf headquarters within a week. The bank has whittled down the suitors for the 46-storey building to a shortlist of two in an auction arranged by property agents CB Richard Ellis.

Only four bidders progressed to the second round this week. They are thought to have been GIC Real Estate, the Government of Singapore’s property arm; the Abu Dhabi royal family via Lancer Asset Management; Three Delta, the company owned by the foreign minister of Qatar; and Quinlan Private, the investment vehicle of Dublin tycoon Derek Quinlan.

However, property sources are not ruling out a late pitch from Istithmar, the property arm of Dubai’s ruling Maktoum family. HSBC is keen on a long-term investor as its landlord because the bank plans to stay on-site and lease the building for £43 million a year.

One source said: “This has been a relatively quick process, with interest from all the usual list of big players. We are down to the last two, and a decision can be expected in a week.”

HSBC could make a profit of £500 million from the sale of the building, which it agreed to buy in 1998 but only completed on in April 2002.

According to a well-placed property source, the bank spent about £500 million in so-called milestone payments for possession of 8 Canada Square, triggering a £169.5 million profit for the original owner, the Canary Wharf Group.

HSBC wants to sell the building on a 15-year leaseback, with two options to extend the terms, each of five years.

The initial annual rent is expected to be £43 million. A sale price of £1 billion will mean a net initial yield of about 4.25 per cent.

Earlier this year, the Swiss Re building, known as the Gherkin, was sold for £600 million — £630 million including acquisition costs — on a yield of 4.5 per cent. City offices were selling on yields of more than 5 per cent 18 months ago.

Prospects of rent rises in Docklands and the City are encouraging buyers to purchase at record low yields.

Letting agents at CB Richard Ellis report that rents in Canary Wharf estate have risen by 20 per cent in the past year to about £50 per square foot. Vacancy rates in the 14 million square foot of Docklands offices have fallen from 12 per cent to 3 per cent.

This week, Barclays Capital took another 300,000 square feet at 40 Bank Street, while Bear Stearns has just taken another floor at level 31 of One Canada Square covering 30,000 square foot.

JPMorgan is in talks to have built a 1.8 million square foot headquarters site in the Wharf or move to a new City headquarters on London Wall.