Asians swoop on London offices

AlloyMtd, an infrastructure group headquartered in Kuala Lumpur, has made its first foray in London this month, joining a string of Asian investors looking to diversify their portfolios with investments in the UK.

The Malaysian investor has acquired UBS’s development site at One Crown Place in Central London., where it plans to develop a 35,000 m2 tower with office, hotel and retail space.

‘This transaction adds another feather in the cap for the Group in its venture of purchasing property and real estate development outside Asia,’ commented Azmil Khalid, president and CEO of AlloyMtd Group.

The company is the latest new generation Asian investment fund to snap up offices and residential in the UK and bet on some of the city’s largest development projects.

Also this week, leading Chinese insurance company Ping An entered the UK property market with the purchase of the Lloyds Building at One Lime Street for £260 mln reflecting a net initial yield of 6.1%.

‘We have seen a number of similar operations announced by the Asians in close succession. In the context of the general flow of money into London, the scale of investment from Asia today is quite remarkable,’ commented Stephen Down, head of Savills’ Central London investment team which advised on the deal.

ED - While Savills and other parties involved in the deal did not identify the buyer, it is widely known in the market that it was Ping An.

ASIAN DOMINANCE
On the acquisition front, Asian buyers dominated the investment market in London’s City last year, representing £2.27 bn of transactions, more than any other buyer groups. In total, they represented some 20% of the investment market in 2012, up strongly from around 5% a decade ago.

Asian investors' activities have not been limited to buying existing buildings but have recently involved some of London’s largest development projects.

China’s property and entertainment conglomerate Dalian Wanda Group has just bought residential tower One Nine Elms in London in an off-market deal. The purchase from Irish and UK investor-developer Green Property represents the Chinese group's first foray into the London property market.

One Nine Elms is a mixed-use development which will comprise 1 million sq ft of prime residential, office and retail space within two towers of 45 and 60 storeys respectively, connected by a high-level link bridge. Reaching 205 metres, taller than the Gherkin, One Nine Elms is expected to be completed in 2016-2017. On completion, the value of the Central London development is expected to be over £700 mln.

Other major projects under Asian investors’ control include Battersea Power Station, which was acquired last year by a Malaysian consortium for £400 mln (€505 mln) and the Royal Albert Dock, where Chinese developer Advanced Business Park (ABP) is planning a 3.2 million sq ft project which includes offices, homes and shops.

ABP signed a deal in May this year to convert a plot of land next to London's City Airport into a financial district aimed at Chinese firms. It teamed up with local developer Stanhope for the development, which will be worth an expected $1.5 bn when completed.

Rasheed Hassan, director of Cross Border investment at Savills, said the increase in the level of Chinese money into London is largely a result of the country's growing economy as well as recent relaxation by the Chinese Insurance Regulatory Commission. ‘Savills estimated this could result in up to £10 bn of new inward investment to London,’ he noted.

EXCESS LIQUIDITY
In general, the driving force behind the Asian investors’ acquisition spree is the excess of liquidity, added Savills’ Down. ‘The Malaysian economy is commodity driven and there is a huge amount of wealth being generated which needs to be re-invested. A lot of money find its place into London, which is a fortunate recipient thanks to the market transparency and the lack of barriers. In the case of China, the economy is growing strongly and they are looking for some relatively low risk to diversify their holdings,’ he said.

South Korean investors are also forecast to play a more active role in the future, having recently accelerated the pace of investment outside their home country, due to large capital inflows and a small domestic market, as well as recent uncertainties in the country’s economic and political landscape.

Commenting on the reason why London is preferred upon European cities such as Paris or Frankfurt, Savills’ Down noted that London offers ‘compelling’ yields compared to anything that is achievable in other European markets. ‘London has several advantages including the lease length, the language, and the lack of discrimination from a tax perspective,’ he pointed out. In addition, it is exempt from the general currency and economic uncertainties surrounding the eurozone, he added.

DIFFERENT STRATEGIES
Investors from China, Singapore, Malaysia and South Korea differ substantially in their investment profile. While Malaysians have so far focused on large development projects, Singaporean and Hong Kong-based investors mainly target offices and residential. South Korean groups look for specific criteria to ensure the acquisition fulfils their distribution commitments. Typical requirements include a net cash yield of between 6-7% with minimal capital expenditure and a holding period of around five years.

‘From a residential perspective, London is an interesting market due to the high home ownership rate (compared to Germany for instance). In London, we see a huge amount of housing units sold on an individual basis because overseas investors are buying flats for their own use.’

‘From a residential perspective, London continues to attract a wide range of buyers – the super prime market is dominated by wealthy Middle Eastern and Eastern European owners whilst the mid value residential apartments tend to be popular with the Asian buyers predominately.’