Insatiable foreign appetite propelled Central London investment volumes 50% higher in the first nine months of the year. Over on the Continent, big-ticket transactions were also the order of day.
This is London calling all global real estate investors who haven’t already heard: ‘You’re missing a great party’. The spectre of Brexit – which was blamed for slashing investment last year – hasn’t had a look in this year. The market has rallied, thanks to massive infusions of foreign equity, particularly from Asia, keen to snap up choice buildings in the UK.
A series of advisers’ reports published in October all tell the same recovery story.
In its analysis Real Capital Analytics (RCA) reported that the UK had retaken first place from Germany as the top European real estate investment location during the first nine months of 2017, when €185 bn of commercial property changed hands, The value of transactions in the UK rose 5% to €47.3 bn in the first nine months, led by the continued strength of investment in London.
Germany registered a 12% increase in investment in the first nine months, with €45.2 bn of commercial property sales. This marks a reversal of the trend in 2016 when uncertainty generated by the Brexit vote led to a 40% year-on-year drop in full-year volumes for the UK to €57 bn. Germany ended the year on €59 bn, despite its own 19% investment drop.
Most liquid market
Brexit tends to hog the headlines but investors haven’t lost slight of the fact that London is a global financial and business centre. A study published by CBRE crowns the UK capital as the most liquid real estate market in the world. The other cities in the top 5 are Tokyo, New York and Los Angeles and Paris.
Investors’ focus has been on the City of London, which in the first nine months of 2017 exceeded the full-year 2016 total and could beat the record set in 2014, according to Savills. Volumes reached £8.5 bn (€9.54 bn) at the end of September – 6% higher than 2016’s annual total of €9.06 bn and 58% up on the same point last year.
Major deals included the €1-plus bn sales of the Cheesegrater and Walkie-Talkie towers to Hong Kong/Chinese firms-based firms. ‘As of the end of the third quarter, Savills had been directly involved in almost 40% of total turnover in the City this year, the largest of any investment agent. We are still currently monitoring 67 investment opportunities in the City market totalling approximately £7.8 bn (€8.76 bn), of which 20 are currently under offer, totalling almost £1 bn,’ commented Felix Rabeneck, director in Savills’ central London investment team.
Other assessments are equally upbeat. ‘The weight of money from Asia-Pacific shows no signs of abating and the high levels of liquidity in the market are reflected in the average lot size in the City increasing to £116 mln in Q3,’ noted Martin Lay, joint head of London capital markets at Cushman & Wakefield. With over £6 bn available stock currently on the market in the City, Lay expects a strong finish in Q4, ‘leading to total investment volumes in 2017 significantly outstripping last year.’
That said, office trading in London was somewhat subdued in the final weeks of the third quarter, with just €350 mln of such deals in September. However other sectors took up the slack. For instance, R&F Properties and CC Land Holdings, two Chinese firms based in Hong Kong, stepped into the €532 mln acquisition of Nine Elms Square residential-led development site in southwest London. They replaced peer Dalian Wanda, one of four firms active in real estate under pressure from the Chinese authorities over major overseas investments.
Pubs and beds
The bulk of the action was in hospitality, in all its guises. Patron Capital completed the complex acquisition in August of Punch Taverns and its securitised property assets in a deal that valued the pub business at £1.8 bn (€2 bn). Patron simultaneously sold on 1,900 of the 3,200 premises to brewer Heineken.
Considerable private equity capital also flowed into the hotel sector. In late September, UK-based Aprirose completed the acquisition of the QHotel business from Bain Capital Credit and Canyon Partners for £525 mln (€598 mln). The largest hotel deal of the year, QHotel’s portfolio comprises 3,680 beds spread across 26 five- and four-star hotels throughout the UK. The deal was funded by Aprirose and its roster of international investors, including Chinese investor Cindat Capital Management.
A month earlier, Henderson Park, the pan-European real estate investment platform, entered the UK hotels market with the acquisition of two Hilton Metropoles in London and Birmingham from Tonstate. Reliable sources said the deal was worth around £500 mln (€553 mln) in total, with the London hotel acquisition representing a 5% yield, and the Birmingham property a 8.5% yield.
Drop in France
Some €92 bn of commercial real estate traded in Europe – excluding the UK and Germany – in the first nine months of 2017, according to RCA. The French market, the persistent underperformer in the Big Three alongside the UK and Germany, did not build on the ‘Macron effect’. RCA recorded a 32% drop in French volumes to just over €13 bn, but indicated that the final quarter could be a lot stronger as €2.4 bn of deals had completed and another €6.7 bn was pending.
As if on cue, the sale of Coeur Défense was confirmed by the buyers on 30 October. While the price was not disclosed, EuroProperty, PropertyEU’s weekly publication, had reported 10 days earlier that US private equity firm Lone Star had sold Europe’s largest office complex for €1.8 bn. The buyers were all French: Amundi Real Estate, Crédit Agricole Assurances and Primonial REIM. EuroProperty also revealed four banks had provided a €900 mln financing package for the transaction.
The bank club underwriting the financing is believed to be BNP Paribas, ING, Natixis and Société Générale. Paris also hosted two other large office transactions in early October. South Korean institutional investor Vestas Investment Management emerged as the buyer of Unibail- Rodamco’s So Ouest Plaza mixed-use scheme in northwest Paris for over €470 mln. Separately, Primonial finalised the acquisition of the IN/OUT office building in Paris from SFL, the French subsidiary of the Colonial Group, for €445 mln, or a yield of 3.7%. The deal – which was anticipated by EuroProperty – was initially signed in July. IN/OUT is a 35,000 m2 office property, located in the Boulogne-Billancourt district in western Paris.
Billion-plus deals
Oxford Properties, part of the Ontario Municipal Employees Retirement System (OMERS), confirmed on 2 October that it was buying the Sony Center in Berlin for €1.1 bn. This acquisition from Korea’s National Pension Service was also anticipated by EuroProperty earlier this year. The 112,000 m2 mixed-use scheme on Potsdamer Platz is being acquired in a joint venture with US investor Madison International Realty.
Early October also featured the latest chapter of the Asian advance into European logistics. Singapore-listed Global Logistic Properties (GLP), owner of 55 million m2 of logistics space in Asia and the US, has emerged as the buyer of European logistics group Gazeley for around €2.4 bn.
GLP is being privatised following its acquisition by Chinese private equity firms and the state-owned Bank of China in July of this year. The company said the Gazeley deal marked its entry into Europe and provides it with ‘one of the highest quality portfolios in Europe as well as an experienced local management team with a strong development track record’.
The Asian investor had previously tried to buy P3 but was beaten to the punch by Singapore’s sovereign wealth fund GIC. Logicor, Blackstone’s European logistics platform, was snapped up by Chinese sovereign wealth fund, CIC, for €12.25 bn in June.
