Tuesday 21 November 2017

London real estate market thrives despite Brexit woe

Overall demand for London office space has defied expectations of a Brexit-induced downturn
Overall demand for London office space has defied expectations of a Brexit-induced downturn

Jack Sidders

Blackstone Group LP plans to put on sale the headquarters of IG Group Holdings Plc in the City of London for about Stg£250m (€282m), according to two people with knowledge of the discussions.

The US private equity firm has hired brokers HFF Inc and Savills Plc to market Cannon Bridge House, which it recently modernised and leased to companies including Deliveroo owner Roofoods Ltd, the people said, asking not to be identified because the information is private. This is the latest in a series of London properties to be offered for sale by Blackstone, which has bet heavily on the city's real estate market.

A spokesman for Blackstone declined to comment. The fund manager bought Cannon Bridge House for about Stg£170m in 2015.

Blackstone sold the Lacon House office in London for Stg£285m last month and is marketing another property in the city for about Stg£450m.

Elsewhere, Madison International Realty LLC and TH Realty Estate plan to sell a collection of buildings in the City of London financial district that could be redeveloped into an office tower, two people with knowledge of the sale said.

Broker CBRE Group Inc has been appointed to offer the Houndsditch Estate to a small group of potential buyers, seeking bids of more than Stg£240m (€272m), the people said, asking not to be identified because the plan is private.

The estate, which is three minutes' walk from The Gherkin building, includes five buildings, which could be partially modernised or demolished to make way for a 19-storey tower, the people said.

Representatives for Madison, TH Real Estate and CBRE declined to comment.

Madison bought a 50pc interest in the estate in 2014 for about Stg£100m and has since increased its ownership to a majority stake, the people said. TH Real Estate meanwhile is an affiliate of Nuveen, the asset management unit of the Teachers Insurance & Annuity Association of America.

The enduring appetite of global investors for London real estate has been bolstered by Sterling's weakness, along with the gap between real estate and government-bond yields. Numerous London offices with long leases to corporate tenants have been sold recently despite expectations of a Brexit-induced downturn. Indeed, both the Walkie Talkie and Cheesegrater have sold for high prices this year, encouraging would-be sellers to offer more assets for sale after a drought following the Brexit vote. Only last week, it emerged that Hong Kong billionaire Angela Leong had bought a historic building in London's Aldwych district for about Stg£250m ($338m).

Leong, who is married to casino magnate Stanley Ho, completed the purchase of Aldwych House from Rowan Asset Management and GI Partners LLC, people with knowledge of the matter said, asking not to be identified because the deal is confidential. The 174,000 sq ft (16,200 sq m) building near Covent Garden has been leased to tenants including WeWork Cos. and the ROKA restaurant after a recent modernisation.

A spokesman for the vendors declined to comment.

Representatives for Leong did not return calls and emails seeking comment.

Leong, who has a net worth of $3.7bn according to the Bloomberg Billionaires Index, is executive director of SJM Holdings Ltd, Macau's third-largest casino operator by revenue.

In January of this year, the Shun Tak Group, founded by Leong's husband, Stanley Ho, completed its acquisition from Green Property of 7 and 8 St James's Square in London for a combined total of €290m (Stg£245.9m).

The sale brought to an end Green Property's ownership of a portfolio which had once been owned by a company linked to the convicted Greek fraudster Achilleas Kallakis. Green Property acquired No 7 and No 8 St James's Square from AIB in 2008 as part of the bank's disposal of the wider Kallakis portfolio.

Hong Kong and Chinese investors have poured into London's commercial real estate market following the Brexit vote, lured by the cheap pound and lower values than their domestic market.

Buyers from both the Chinese mainland and the former British colony spent almost Stg£4bn on London commercial property in the first half of the year, up from Stg£2.7bn in the whole of 2016, according to data compiled by broker CBRE Group Inc.

But that demand is poised to peter out however as capital controls introduced by the Chinese government start to bite according to Mark Delaney, chief investment officer of Australia's largest pension fund, AustralianSuper Pty, The withdrawal of buyers from China and Hong Kong could open up opportunities for other monry managers, Delaney said.

Last month, Dalian Wanda Group Co scrapped plans to buy a land plot in London for Stg£470m, amid the Chinese government's intensifying scrutiny of overseas investments. The government in Beijing formally laid down new rules on overseas investments, making explicit its campaign against what it calls "irrational" acquisitions of assets in industries ranging from real estate to hotels and entertainment.

AustralianSuper Pty., which has Aus$120bn ($95bn) in assets is looking to invest more overseas, with real estate in Britain, Europe and the US of particular interest. In 2016, the company paid Aus$900m to take a majority stake in the 67-acre King's Cross redevelopment in central London,

"Brexit may present an opportunity for us, but we will need to be patient. There are likely to be some good quality assets that become available that will be worth looking at," Delaney said in an interview on August 24 last.

Overall demand for London office space has so far defied expectations of a Brexit-induced downturn, encouraging more owners to consider sales in the hope of securing record prices. Companies leased 3.2m square feet (297,000 square metres) of office space in the City of London financial district in the first half of 2017, a 19pc increase on the previous year, according to data compiled by broker Savills Plc.

(Bloomberg)

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