Editor’s Choice: Chinese dragon becomes more adventurous

Chinese investors are storming London to snap up some of the capital’s biggest – and juiciest -properties this year, even taking on development risk in search of better investment opportunities.

Earlier this week, a consortium led by China’s largest insurer China Life Insurance acquired Clifford Chance's headquarters in London's Canary Wharf for £795 mln (€1 bn).

‘Chinese investors are here in force,’ Nick Braybrook, a City of London investment partner at Knight Frank, told PropertyEU. ‘They are more entrepreneurial than the first wave of Asian investors in London and will look at both shorter income and development opportunities. In the past, some Asian investors would only invest within 400 metres of the Bank of England. That has now changed. Chinese investors are more adventurous,’ Braybrook added.

In the deal this week, China Life Insurance is taking a 70% share in the 93,000 m2 property at 10 Upper Bank Street from Canary Wharf Group, with Qatar Holding - part of the Qatar Investment Authority - buying 20%. Songbird Estates, Canary Wharf Group’s owner, is retaining a 10% stake as well as the asset management of the property. The scheme is one of only five buildings of over a million square feet in London, all of which are situated on the Canary Wharf Estate.

Unprecedented interest
Asian investors, particularly the Chinese, are a force to be reckoned with in London, according to Kevin McCauley, senior director of research and consulting at CBRE in London. McCauley said just last month that he had more meetings with Chinese and Singaporean investors in the past six months than he had in the past two years, due to unprecedented interest.

In addition, Asian investment in the UK rocketed by 112% last year to £10.3 bn, according to McCauley. CBRE is also forecasting that Asian investors will account for up to £10 bn of deals this year. In total, £53 bn of deals were transacted in the UK last year, of which almost half – or £21 bn – were closed in the last quarter.

Chinese construction firm China Overseas Land and Investment is believed to be on the brink of acquiring Carmelite Riverside, a 135,000 square feet office building in the City of London, from Orion Capital Managers and Quadrant Estates for around £160 mln. The deal is expected to close shortly, according to those who track the market. The iconic HSBC Tower in Canary Wharf is likely to pique the interest of Chinese investors, given that it is the biggest – and most expensive - office in London. Put up for sale at the end of last month, it is expected to sell for around £1.1 bn.

There has already been a slew of large deals this year. Earlier this month (June), Malaysian pension fund KWAP acquired a majority interest in the Intu Uxbridge shopping centre in London for £175 mln. In January, China Investment Corporation (CIC), China’s largest sovereign wealth fund, completed its acquisition of Chiswick Park in west London from Blackstone for around £780 mln. Also, in January, Chinese state-owned developer Greenland Group acquired the Ram Brewery site, in Wandsworth, south-west London, for £600 mln in its first venture in the UK. It plans to develop a mixed-use 36-storey tower on the site, which will include offices, 166 apartments and shops and restaurants.

Shell project
While Chinese investors are new to the London scene, Qatari investors already have an established track record there. Earlier this month, a Qatari-backed plan to redevelop the Shell Centre project south of the River Thames was given the green light by the UK government. Under the £1 bn plan, eight buildings will be constructed around the London headquarters of oil company Shell, near to the London Eye on the South Bank. The complex will total 1.45 million square feet, including offices, shops and almost 900 apartments. Around 270,000 square feet of space will be leased to Shell. The project is being jointly developed by Canary Wharf Group and the real estate arm of Qatar’s sovereign wealth fund and is expected to take six years to complete. (Qatar’s royal family also funded construction of the iconic Shard skyscraper in the City of London, which opened in 2012.)

Interestingly, the acquisition of the Clifford Chance HQ is not the first time that Chinese-Qatari interests have aligned in London. Both Qatar Holdings and CIC are major shareholders in Songbird Estates, holding 28.6% and 15.8% respectively.

Asian war chests
Heightened interest on the part of Asian and Middle Eastern investors in London is the latest trend against a backdrop of increasing global capital flows. In the year to mid-May, Asian investment outside Asia rose 75.1%, according to C&W. In the same period, cross-border European investment rose by 25.4%, US investment outside the Americas rose 72.2% and Middle East/African investment outside MEA rose 37.5 %, according to C&W.

There are a number of properties on the market in London which could appeal to Chinese investors, including Senator House, a 15,000 m2 office with a guide price of £105 mln, reflecting an initial yield of 6% and Bavaria House in Appold Street, a 4,000 m2 office with an additional 16,700 m2 of development space, which is expected to sell for around £40 mln.

Asian investors have amassed massive war chests in recent years following deregulation in their home markets which has enabled them to invest abroad. Last year, they snapped up 14 offices in central London priced at more than £200 mln each as well as an additional 33 deals of at least £100 mln each. Subsequently, they far outstripped UK investors, who accounted for just nine deals above the £200 mln mark, or German investors with just five deals above the same mark, according to CBRE.

It will be interesting to see whether the more adventurous Chinese will bump up the Asian tally even further this year.

Sara Seddon Kilbinger
Correspondent