Demand for trophy assets remains strong: BNP Paribas

Investors continue to display a strong preference for trophy buildings, despite a decline in the overall volume of £100 mln-plus (EUR 124 mln) deals in the last two years compared with 2007, according to research by BNP Paribas Real Estate.

Compared with 2007, when London witnessed 50 deals of over £100 mln, totalling £12.6 bn, the volume of trophy deals declined to over £6 bn in 29 transactions in 2011 before picking up to £6.7 bn in 32 deals so far this year. This volume looks on course to rise considerably by the end of the year, the adviser said.

The property consultant said it was interesting to note that although trophy volumes in the last two years were lower than in 2006 and 2007, by value and number their proportion of the total is the same. In 2006 and 2007 the proportion of deals that were £100 mln-plus by value was 61%, and by number of deals, 12%. In 2011 and 2012, the proportional figures are almost exactly the same with 60% of total volume and 13% of the number of deals.

Paul Abrey, executive director of investment at BNP Paribas Real Estate, commented: ‘It is important to understand that the market dynamics between this year and 2006 are very different. Put simply, 2006 was a market where acquisitions occurred through leverage, massively so from the money markets, whereas this is now no longer the case. In 2012, leverage for acquisition is extremely hard to come by - it is virtually non-existent.’

Many trophy deals today are executed by cash-rich sovereign wealth funds, wealthy individuals or investment funds. These investor types are mostly from overseas and focused specifically on the London market, the consultant said.