Editor's Choice: Foreign developers raise their flags in London

There is no doubt about it: London takes all the prizes when it comes to new office developments and regeneration projects in Europe in the current phase of the property cycle.

Even during the crisis, a number of iconic new buildings could not be kept down completely. To be sure, recent new additions to London’s skyline like the ‘Cheesegrater’ on 122 Leadenhall Street, the ‘Walkie-Talkie’ on 20 Fenchurch Street and the ‘Shard’ in London Bridge Quarter in Southwark were all stalled immediately after the outbreak of the crisis, but after delays, the cranes re-emerged and London now has a number of new towers to add to its tourist route.

While the Cheesegrater and Walkie-Talkie were developed by home-grown players, the development of the Shard introduced a theme which appears to be growing in importance. Designed by Italian architect Renzo Piano, the Shard was developed by Sellar Property on behalf of London Bridge Quarter Ltd and is jointly owned by Sellar Property and the State of Qatar.

Indeed, home-grown real estate giants are being relegated to the sidelines as a slew of Middle Eastern and Asian investors and developers enter the fray for a piece of London’s skyline. Just this week, Mitsubishi became the latest foreign investor to grab a piece of the booming office development action in London. The Japanese conglomerate is to submit a planning application to the City Of London Corporation for a 40-storey office tower in the heart of the City. Mitsubishi Estate, a major Japanese developer, is proposing an office-led, mixed-use tower with flexible retail use at ground and mezzanine floor levels on a site located at 6-8 Bishopsgate and 150 Leadenhall Street, in the City’s eastern cluster of tall buildings.

Given its central location, the Wilkinson Eyre-designed redevelopment is expected to have strong appeal for both insurance and financial tenants. The building will provide a total of 71,501 m2. Naoki Umeda, managing director and CEO of Mitsubishi Estate London, said: ‘The submission of this application represents Mitsubishi Estate’s confidence in the City of London’s long-term growth prospects as a world financial centre, and its attractiveness for blue-chip companies.’

Mitsubishi is by no means the only Asian investor staking out a claim to new London developments. In another recent deal, a four-member consortium from the UK, Malaysia and Singapore scooped the new £1 bn development of Bankside Quarter, a 130,000 m2 residential, office and retail development. The consortium comprises UK developer Native Land, Singapore’s investment firm Temasek and listed hotel specialist Hotel Properties Limited, as well as Malaysian developer Amcorp Properties.

Temasek has also been named in connection with another major London regeneration project. The Singapore-based company is believed to be part of the AXA Real Estate-led consortium which in February this year acquired the former Pinnacle site in the City of London. The partners plan to develop a new building at the site, which is located at 22 Bishopsgate, near Liverpool Street Station, with developer Lipton Rogers.

Chinese land at Royal Albert Docks
The Bankside and Pinnacle schemes are two of the latest major regeneration projects to spark to life in London in the wake of the global financial crisis. In another corner of the city, in London’s Royal Albert Docks, another foreign investment fund, China Minsheng Investment, recently announced plans to invest in the £1 bn (€1.35 bn) development of a new commercial district in the UK capital. The private equity firm said it would become the majority investor in London’s Royal Albert Docks project, which was first unveiled by Chinese developer Advanced Business Park (ABP) in 2013.

The Malaysians are also becoming a formidable development contingent in London. In January, Malaysia-listed property developer Eastern & Oriental Berhad (E&O) announced it has acquired a freehold site in Hammersmith, west London for £57 mln (€74 mln). On the same side of the city, a Malaysian consortium is the driving force behind a mammoth regeneration project on the south bank of the River Thames, the Battersea Power Station.

The decommissioned coal-fired power station was acquired in June 2012 for £400 mln (€505 mln at the time) by listed Malaysian property developer SP Setia, conglomerate Sime Darby and the Employees’ Pension Fund of Malaysia. The two iconic chimneys of the power station are currently being restored while the development of 3,500 homes, 160,000 m2 of office space, retail units and a park is now under way.

Elsewhere in London, the King’s Cross Central mixed-use development continues to draw far-flung global investors. In February UK media revealed that Australia’s largest pension fund AustralianSuper has agreed a deal to buy a 20% stake in the scheme for £200 mln (€270 mln). At 67 acres (27 hectares), King’s Cross Central is a major mixed-use development which will include 2,000 new homes, 3.4 million sq ft (316,000 m2) of office space across 50 new buildings including Google’s new £1 bn European head office. Developed by the real estate arm of French bank BNP Paribas, the office scheme was sold to a JV comprising AXA REIM and an unnamed pension fund.

The French are becoming a formidable force
AXA Real Estate has been involved in several other large-scale projects in the capital including 60 Holborn Viaduct which is let to Amazon. Other French investor-developers that have landed in London include French construction giant Vinci which has teamed up with local player St Modwen Properties in a 50-50 joint venture and the Covent Garden Market Authority (CGMA) on the regeneration of the New Covent Garden Market in Nine Elms. The 10-year project, the largest in the Nine Elms regeneration area, will see the delivery of over 500,000 sq ft (46,500 m2) of new state-of-the-art market facilities across a 37-acre site which will house the 200 market businesses currently employing around 2,500 people.

The remaining 20 acres of land will be transformed by VSM into three residential neighbourhoods comprising 3,000 new homes; 135,000 sq ft of office space; and 100,000 sq ft of retail, leisure and new community facilities, including shops, cafés and restaurants. French peer BNP Paribas Real Estate is likewise betting on residential in London. In April, the real estate arm of the Paris-listed bank purchased the Parker Tower site near Covent Garden for its first UK residential scheme.

The French contingent in London is strong, but developers from other parts of continental Europe are also represented in the UK capital. At end-2014, Swedish developer Skanska signed a contract to build a 35-storey office tower in the City of London for £198 mln (€250 mln) on behalf of US insurance firm W.R Berkley. Nicknamed the Scalpel because of its angular design, the tower at 52 Lime Street will provide around 37,000 m2 of office space and is due to be completed in 2017.

Slovakian developer HB Reavis is also becoming a recurring name in the UK capital. Late last year, the CEE developer exchanged contracts to acquire 20 Farringdon Street, a prime development opportunity in London’s Midtown, for an undisclosed amount. This acquisition is HB Reavis’ second in the UK market and follows the purchase of 33 Central, its newly rebranded development at 33 King William Street, in the City of London, in November 2013.

Qataris buy a piece of the action
A romp around new office-led and mixed-use developments in London would not be complete without a stop at Canary Wharf where Canadian investor Brookfield Property Partners and Qatar Investment Authority recently ended a long-running battle for control of Songbird Estates, the majority owner of Canary Wharf Group. Their €3.5 bn acquisition of the stake in Canary Wharf Group, which in turn owns the majority of the Canary Wharf office estate, gives them a big finger in the pie of new development projects at the district including a new waterside community that has received approval from city mayor Boris Johnson.

The Canary Wharf estate will also undergo a major facelift as new office projects and mixed-use projects including residential schemes get off the ground. In 2015 Canary Wharf Group is expected to embark on the largest development pipeline it has undertaken since 1990: four separate projects totalling 22 buildings and 5.1 million square feet (474,000 m2) of space.

Over the centuries, London has proven over and over again that it is capable of reinventing itself and remaining an attractive and vibrant capital. As global investors raise their flag on some of the largest regeneration projects in Europe - and possibly the world - there is no doubt that its skyline is set to change yet again.

Judi Seebus
Editor in Chief PropertyEU