Chinese developer's buy into London signals shift of direction, expert says

Dalian Wanda's purchase of a development site in the South Bank regeneration area signals a shift in the source of Chinese capital targeting London, according to Peter Burns, executive director and head of central London development at CBRE.

‘Wanda represents a new type of buyer looking at London as a result of China’s recent globalization policy,' Burns said, adding that the deal signals a shift of capital sources from state-owned enterprises to private companies.

'We’ve done a lot of work for Chinese investors in the city of London. We’ve done a lot of work for Chinese occupiers, which often buy their own accommodation. However, this is the first purchase by a Chinese privately-held developer - and it won’t be the last,’ Burns noted.

Burns said Chinese companies in general are on a mission to raise their investment exposure outside of mainland China. 'They are targeting largely real estate and stakes in corporates around of the world. London is a straightforward entry point into Europe so I believe what we are seeing today is just the tip of the iceberg.'

Dalian Wanda Group, a commercial property developer and investor, made its first foray outside China earlier this year with the purchase of the One Nine Elms mixed-use project in an off-market deal with Irish investor-developer Green Property.

The scheme, part of London’s South Bank regeneration area, will be used by Wanda for a five-star hotel, marking the first move overseas by Wanda’s luxury hotel brand as well as the first luxury hotel to be opened by a Chinese firm outside China.

The site, previously home to a largely derelict 1970’s office block on the corner of Wandsworth Road and Nine Elms Lane, was bought by Green Property from Allied Irish Bank in 2008. The Irish commercial property developer subsequently secured planning permission from the London Borough of Wandsworth for a residential-led scheme, working with architects KPF and project managers CIT.

‘We advised the owner to come up with something new for this project. They opted for the tallest residential tower in Western Europe connected by a high-level link bridge to a second tower,’ commented Peter Burns, executive director and head of central London development at CBRE, which advised the vendor on the deal.

‘The challenge for very large scale developments like this one has always been capital and in today’s market the lack of debt made the scheme difficult to finance in the domestic market. Also, it was a vertical project so you could not think of building in phases because of course once you start you cannot stop. We suggested the buyer might well be a cash-rich Asian investor, particularly because they are used to finance high skyscrapers in their home market and usually have a very long/term investment horizon.’

Wanda is believed to have forked out £90 mln for the project, which on completion is forecast to have a gross development value of over £700 mln (€832 mln). In total, the site will see the development of roughly 1 million sq ft of prime residential, office and retail space within two towers of 45 and 60 storeys, served by an extension to the Tube’s Northern line that is due to open in 2016.

Reaching 205 metres, taller than the Gherkin and the London Eye, One Nine Elms is expected to become a key feature of the London skyline. ‘The scheme will be the pinnacle of a new tall building cluster,’ commented Councillor Ravi Govindia, Co-Chair of Nine Elms Vauxhall Partnership and Leader of Wandsworth Council. Govindia reckons One Nine Elms will be ‘the gateway’ to a linear park running all the way to Battersea Power Station, which is currently being redeveloped as a mixed-use scheme by its Malaysian owners.

According to research published by agent CBRE, Asian investors have recently emerged as a dominant force in the London investment market, representing £2.3 bn of transactions so far in 2013, more than any other overseas buyer groups. In total, Asians represented some 21% of total real estate investment activity in the UK capital in 2013, up strongly from a decade ago.

Burns of CBRE said the increase in the level of Chinese money pumped into London is largely a result of the country's growing economy, its go-global policy as well as recent relaxation on overseas investment by the Chinese Insurance Regulatory Commission. ‘2013 is the year when Chinese investors have begun to make a major impact on London,’ commented Burns.