Tuesday 12 December 2017

London enjoys fresh wave of post-Brexit confidence

Investors see the enduring value of London as a world financial capital
Investors see the enduring value of London as a world financial capital

Jack Sidders and John Ainger

Land Securities Group Plc is more likely to start building London properties speculatively after the Brexit vote spooked the market and deterred other developers, the company's CEO Robert Noel said in an interview.

Land Securities has cut its debt and leased almost all of the space in the developments it started after the global financial crisis, Noel said on Tuesday. That would enable the UK's largest real estate investment trust (REIT) to take advantage of the market uncertainty, he said.

"We will start again sooner than we would have done had we voted to remain in the EU, which is quite exciting," Noel said.

"The metric we watch like a hawk is whether other people are building and the early signs are that some space has slipped, but not as much as you would imagine."

Land Securities launched a 3.1 million sq ft (288,000 sq m) speculative development pipeline in 2010, anticipating an economic recovery that began as the buildings started to be completed. About 10pc of that space remains available after the company leased an additional 138,000 sq ft (12,800 sq m) in the six months through September, Noel said.

First-half profits, excluding changes in asset values and one-time items, rose 4.5pc to Stg£192.5m (€223m) because of lower interest costs and income from new leases, Land Securities said last Tuesday.

The company reported a net loss of Stg£95.8m (€111m), or 12.1 pence a share, compared with a profit of Stg£708.1m (€823m), or 89.3 pence, a year earlier, as it wrote down the value of its properties. "We have pretty much finished our developments of scale," Noel said. "We have got our interest costs down and it puts us in a very resilient position."

Land Securities aren't alone in expressing confidence in London's enduring value as a world financial capital. Last Tuesday, the Daily Mail reported that plans are back in motion to build a new giant skyscraper in the City of London after Brexit put a pause on planning.

Axa Investment Managers Real Assets is understood to be ready to push forward with the development at 22 Bishopsgate. The tower is set to stand 919ft tall - just under 100ft shy of the Shard - with 62 storeys and an estimated construction cost of Stg£450m (€523m).

Axa said last April that it would work with its joint-venture partner, Lipton Rogers, to complete the project in 2019. But fears over Brexit led to concerns about whether the duo would pull out. Axa has now confirmed it will push on with the project as London is "one of the leading global centres for international business".

Major Chinese property investment deals, meanwhile, are still forging ahead in Britain, as China's appetite for the UK property market remains strong despite fears buyers would turn their back on the market because of Brexit. In a sign of post-Brexit confidence, Chinese developer ABP, together with CITIC, have agreed to invest Stg£300m ($378.9m) in the first phase of the Stg£1.7bn project at the Royal Albert Docks in East London.

Four Chinese banks will provide Stg£1.2bn (€1.4bn) and ABP's development partner, Thailand's Charoen Pokphand Group, will hold 25pc equity in a platform company, The East London Development Group.

ABP Chairman Xu Weiping told an East London-China Investment Summit: "These major investments are a vote of confidence in the UK and London market following the Brexit vote. ABP is delighted to be working alongside CITIC Group and Charoen Popkphand Group, two of Asia's biggest enterprises, to deliver the Royal Albert Dock project."

It's expected that some 30,000 jobs will be created upon completion and it's been hailed as the third financial hub of the city, following the likes of City of London and Canary Wharf.

Elsewhere, Sino-Australian investment firm ASF is one of three shortlisted bidders for the regeneration of the Albert Island site in the Royal Docks area. Last week, China's third-largest developer, Greenland Group, vowed to go ahead with building the Spire in West India Quay. At a cost of Stg£800m, The Spire is set to be the tallest residential building in Europe upon its completion in 2020.

With property cooling measures being introduced by Beijing and sterling at a 31-year low, Chinese investors have been snapping up commercial properties and luxury homes in London. In terms of its residential market, London is -according to property website operator Rightmove - set to receive a further boost from Donald Trump's election as US president.

"London's status as a safe haven for overseas investors may perhaps be confirmed by the unexpected result of the US election," said Miles Shipside, housing market analyst at Rightmove.

While Trump's win sparked a rally in global stocks, it wiped more than $1tn off bond values globally on fears the president-elect's policies will boost inflation and prospects for higher interest rates. That's also made investors dump higher-yielding emerging-market assets.

Real-estate agent Strutt & Parker says it expects increasing demand for prime London property from US buyers.

"They aren't currently a significant part of the market," said Stephanie McMahon, head of research. "Following Trump's triumph in the USA presidential election, it is possible that this may change."


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