Mitsubishi Estate JV Buying Former WeWork London Location at 44% Markdown

Mitsubishi Estate has acquired a London office tower formerly leased to WeWork for a price reported to be almost 44 percent less than what the seller, a joint venture between Savills Investment Management and Korea’s Vestas Investment Management, paid to acquire the building in 2018.

The Japanese real estate giant announced on Wednesday, that it has teamed up with Dutch developer Edge to buy 125 Shaftesbury Avenue in London’s posh West End in a deal that closed that same day. A report by the UK’s Estates Gazette said the buyers paid £150 million ($189 million) for the asset.

“As long-term believers in the longevity and resilience of London’s office market, we are pleased to have made another acquisition and remain committed to growing our existing pipeline of developments projects across the Capital,” said managing director of Mitsubishi Estate London, Shinichi Kagitomi, in a press release documenting the purchase of WeWork’s former office.

Mitsubishi Estate and Edge are buying the 1982-vintage building from Savills Investment Management and Vestas after the UK-Korean partnership had paid £267 million for the office in October 2018.

Fund Set to Mature

Vestas and Savills Investment Management are reported to have hired CBRE and Savills to begin marketing 125 Shaftesbury in June of this year at an asking price of £180 million.

Vestas had invested KRW 180 billion ($141 million) in equity in the property on behalf of the Korean Federation of Community Credit Cooperatives (KFCC) and an unnamed Korean brokerage, with the deal managed via a private REIT set to mature in April of next year, according to Korean media reports.

125 Shaftesbury has a gross floor area of 180,000 square feet (16,723 square metres), comprising 140,000 square feet of office space and 40,000 square feet of retail. Having gone through a refurbishing in 2018, the office tower occupies a 1.2 acre (0.5 hectare) freehold site within a 10-minute walk of the British Museum.

Savills and Vestas had acquired the property just six months after WeWork had leased the entire office component of 125 Shaftesbury to Facebook, according to media  accounts at the time.

WeWork broke its lease in 2022, according to a report from the Korea Economic Daily, and moved out earlier this year, paying a penalty equivalent to 1.5 times its annual rent to break the 20-year deal.

JLL and Avison Young advised Mitsubishi Estate on the acquisition, while CBRE and Savills represented the sellers.

The joint venture said in the press release that the acquisition represents an opportunity to redevelop the building and implement smart office features and sustainable solutions, with Edge specialising in leveraging technology to develop more efficient facilities.

“We know that global occupiers still demonstrate strong demand for premium, sustainable and innovative workspaces and that there is pressure on the market to respond with suitable product in order to attract the best businesses,” said Kagitomi. “Having seen Edge’s track record in this arena, we are excited to be working alongside them to deliver a flagship new workplace.”

Transactions of office properties in central London declined 50 percent in the first nine months of 2023 year to £4.8 billion, according to a recent report from JLL. During the same period tenants lease a total of 6.3 million square feet of work space, which was a 21 percent decline from the first nine months of 2022, per the agency’s research.

Japanese Investors Head to London

As the London office market slides, Japanese investors have been stepping up their acquisitions in the UK capital, with Mitsui Fudosan acquiring an office building near St. Paul’s Cathedral in April.

In that transaction the Japanese developer teamed up with local developer Greycoat Real Estate to purchase Sancroft, an office building in the City of London also known as 15 Newgate, for £315 million from Shanghai-based developer Shimao Group.

In October, Japan’s home builder Daiwa House partnered with Australia’s LendLease to develop two build-to-sell apartments in South London with an expected value of $303 million once the project is completed.

Three months before the acquisition of WeWork’s former office, Mitsubishi Estate completed a JPY 114 billion redevelopment project of a 51-storey office building near the Tower of London in August.

With JPY 7.4 trillion worth of total assets, Mitsubishi Estate said that it plans to invest JPY 360 billion in European property assets on a medium to long-term basis.

As of 5 December, Japanese investors acquired $7.4 billion in income-earning real estate assets globally in 2023, over three times the annual average from the country over the past 15 years, according to MSCI Real Assets.