Shock as government department makes smart property decision

Is this evidence of a smart early move by the new coalition government, or just an opportunistic piece of luck? Either way, it’s a move that has landed Transport for London a ££million prize – for getting out of a property lease.

Usually the preserve of retailers vacating highly sought after locations, the lease premium is a rare beast these days. Here’s how the British government department pocketed a big sum – simply for agreeing not to move into new offices (still under construction) that they had contracted to occupy for 30 years.

The unique deal is a symptom of the log jammed commercial property market in London, where few brave souls have the financial strength to start building new office space. For those with real estate coming out of the ground, rarity value means the price of their upcoming office space is already rising.

Transport for London signed up to take 200,000 sq ft in the Shard, set to be London’s tallest building when it is finished in 2012, and agreed to pay £38.50 per sq ft in rent. The 30 year deal meant the developers had sufficient space committed and a guaranteed blue chip rental cashflow, to enable them to start building, in 2009. Today, that early rent deal looks less great for the developers, who are convinced they could relet the same space at a significantly higher rent; so convinced, they paid TfL an undisclosed sum to buy out the original deal.

For TfL in coalition Britain, the deal was too good to pass up, with pressure from the government and an instruction not to renew leases, and exercise all break options. And it’s good news for us taxpayers, as TfL staff will now be moved to offices costing less than £38.50 per sq ft. The question is where they will now move their staff. Think about better value locations just outside the central London area, with plenty of office space available and great transport links – maybe Stratford, or Croydon?

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