By Denise Marray/Gulf Times Correspondent/London


China is the country to watch in 2015 when it comes to investing in the prime London property market — with a particular emphasis on commercial. This is the view expressed by members of Savills’ London and Middle East teams who shared their insights with Gulf Times at a meeting in their West End headquarters.
There are high expectations this year for the London market, both commercial and residential. Alongside sovereign funds, private investors are making an impact as evidenced by last year’s £726mn purchase of 30 St Mary’s Axe, better known as ‘The Gherkin’, by Syria born Brazilian billionaire Joseph Safra. This sale was handled by Savills and Deloitte Real Estate.
Robert Buchele, director of the Central London investment team observed: “We were confident that we would attract interest from both institutional and private investors for The Gherkin, but I don’t think any of us predicted that we would get the level of pricing that we did from a private investor. It was all equity — a very good result. There are major private investors from Russia and Europe and Asia Pacific looking at London.”
The sale this month of the 80 Fenchurch Street development site (close to the iconic Lloyds of London building) is a good illustration of how much demand there is for a prime site. It attracted ten bids from a range of both UK and overseas investors with the agreed price rumoured to be in excess of £50mn. This time last year the vendor came close to selling at a significantly lower price but withdrew from negotiations.
London is still seen as having considerable investment potential despite the recent focus on regional assets.
As Rasheed Hassan, director of the cross border investment team, put it: “I think last year was an interesting year for that London versus regions argument; the prices rose quite aggressively last year in the regions, and I would say if you start to look at the price differential today between the regions and London, London is looking relatively more attractive again because the amount of money that has gone into UK wide investment product has risen over the last two years and that demand, coupled with a lack of stock, has meant that prices have risen.
He added: “The other key part of the investment market that happened over the course of 2014, and also at the start of 2013, was the quite big return of the UK investors, particularly the UK pension funds. The UK pension funds are far more experienced at buying outside of London than the typical international investor. So when you layer them into the market alongside the international investors there has been a lot of activity outside of London. So prices have risen because of that demand and the price gap has narrowed a lot, and I think this year will be a good year for London.”
It is the investor with an appetite for risk that can expect to see the biggest returns, particularly when it comes to investing in estates which have an inherited additional value as the landlord can exert more control over rents, tenants and future developments. Many Gulf investors at the moment, however, prefer to work with established UK developers and take the income from specific single assets.
Buchele noted: “Middle East investors and other investors, once they have a better understanding and hold income type assets in central London, may want to diversify and go up the risk curve, but the preference for many of them is to form joint ventures or associations with local developers to give them the assurance that they are with someone who knows the market and development process such as planning — rather than taking all the risk. “The longer these investors are in a single market, the more embedded they are and the more specialist they become and therefore the more risk and complex assets they will take on.”
He added: “From an overseas and UK perspective, we have depth of demand across all markets, all sectors and all risk types. For the riskier assets, such as development projects, we are seeing more appetite as the cycle matures driven by a strong leasing market and lack of supply.
Hassan characterised London as the most desirable location globally for property investments. “If you look at the sources and destinations of cross border capital globally, London is the top city by a country mile in terms of the volume of cross border capital that comes to London. The next city down is New York. Where London may have over $20bn of cross border capital that comes in, the next one down will have closer to ten,” he said.
The biggest global investor in London is the US followed by Asia Pacific (notably China and Taiwan), and the Middle East. Any possible drop in investment activity from the Gulf due to the crash in oil prices is seen as having only a marginal effect on the market due to the high demand from countries with plenty of ready money, appetite for risk and a desire to put their cash into a safe haven.
Among the Gulf investors, where traditionally there has been strong, consistent interest from Kuwait and the UAE, Qatar is regarded as the most active with investments not just in major commercial and residential developments, but also expressions of interest in key infrastructure projects such as the new railway line HS2. This kind of large scale investment, commented Hassan Farran, a member of the Cross Border Investment team based in Dubai, is recognised as being critical to the UK which needs overseas money to fund such costly projects. He believes that going forward, capital from the Gulf will be an important contributor to such projects in the UK, not least given the UK’s historical ties and strong relationships with many of the Gulf countries.




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