RBS dumps £200m office deal

13 April 2012

ROYAL Bank of Scotland has pulled out of London's biggest office deal of the year.

In a decision that will heighten fears about the City property market, the bank this week dropped the purchase of Tishman Speyer's 650,000 sq ft Aldgate Union development in E1, a fortnight before the transaction was due to complete.

According to Property Week magazine, the bank had been in advanced talks to buy the offices for its own occupation but is understood to have decided to rein in its property spending plans, which totalled £700m in the City alone.

Of this, £200m would have been spent on Aldgate Union, where it was to relocate back office staff from nearby Goodmans Fields. The staff will remain at Goodmans in the medium term.

Tishman Speyer has carried out extensive design work to accommodate RBS. The developer was told of the bank's decision on Tuesday.

The news is a further sign that the expected City recovery has not happened as quickly as hoped, and that big occupiers are not yet ready to start doing deals again.

Although several pre-lets have been under offer since earlier this year to corporate tenants such as insurers Willis and Legal & General and law firm Norton Rose, they have yet to sign and activity shows little sign of picking up.

City sources said the deal not going ahead was not a reflection on the quality of the scheme but the result of the bank's financial strategy.

As well as Aldgate Union, RBS has been in talks to buy two of the City buildings it already occupies: 280 Bishopsgate and Premier Place, Houndsditch. Last week it bought Premier Place from Rotch for £182m and talks continue over the Bishopsgate purchase.

An RBS spokeswoman said the bank would not comment on speculation.

FPD Savills and Jones Lang LaSalle are the letting agents, while DTZ advises RBS.

The failure of the deal will be a blow for some of London's biggest landlords, quoted property giants Land Securities, British Land and Hammerson, who have talked up early signs of a revival in the City office rentals market starting at the end of this year.

Unlike the vibrant West End office market, the City has swathes of empty space, more than 13m sq ft at the end of last year, according to DTZ, compared with 1.8m at the height of the financial services boom in 2000.

City office rents have stabilised according to British Land but most observers now do not see rises coming through until 2006.

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