Eyes on London
Despite Brexit, Chinese investors are still flocking to invest in the capital’s commercial property market
London Trophy assets have been constantly catching the eyes of Chinese investors throughout this year, in spite of the negative press surrounding Britain’s looming departure from the European Union.
Fan Huiyong, chief editor of London-based magazine UK Property Weekly, told the Global Times, “Rich rental income and long-term stability of capital appreciation are the main attractive features of London’s commercial real estate,” adding that the depreciations in the British pound were driving the demand as well.
Among all the investment in London’s commercial real estate this year, capital from China has accounted for a third, up from less than 10 percent before the referendum, according to Los Angeles-based CBRE Group, Inc., the world’s largest commercial property services firm.
Global real estate advisor Colliers International revealed in a new report published on October 4 that the top three cities for real estate investment in Europe remain unchanged year-onyear, with London benefitting from three times the investment volumes of either Paris or Berlin, which rank as second and third, respectively.
Chinese investors welcomed
Several of the most visible and iconic buildings in London’s financial center, known as the City, now belong to Chinese companies.
Hong Kong real estate developer C C Land Holdings paid 1.15 billion pounds ($1.5 billion) for the famous ‘‘Cheesegrater’’ tower in May.
Two months later in July, Hong Kong-based LKK Health Products Group Ltd. agreed to buy the skyscraper known as the ‘‘Walkie-Talkie’’ for 1.28 billion pounds, a record breaking price for a single building transaction.
Meanwhile, China’s Cindat Capital Management is joining an acquisition of QHotels Group, causing the value of the UK hospitality company to exceed 500 million pounds.
According to UK-headquartered consulting firm Savills, Chinese investors are presently pouring record amounts of capital into offices in the City. For example, the first half of 2017 saw a colossal 5 billion pounds of Chinese capital flood in for property purposes in London’s financial heart.
Gwyn Richards, the head of design and assistant director of Built Environment, City of London Corporation, told the Global Times, “We welcome investment from around the world and certainly we welcome all the Chinese investors.”
As the largest “landlord” in the City, City of London Corporation is responsible for encouraging developers to construct commercial buildings in the borough, as well as attracting more financial or other business organizations to operate there.
“There are lots of interests coming from China. We realize that we need to raise our game, starting with bridging and communicating what the city has to offer to Chinese investors,” Richards added.
In an area of 2.6 square kilometers in the City of London boundary, there are 9 million square meters of office space, 16,000 financial institutions and stationed companies, and more than 400,000 financial professionals.
“There are about five major schemes being built at the moment. The cranes on the skyline tell you that. But that’s just the tip of the iceberg,” Richards said, adding that there are a lot of other schemes that have been granted planning permission, but have not yet been implemented.
The City is also facilitating discussions with businesspeople at the preapplication stages of other sites. “That gives you an idea about the intensity of development activities at the moment,” he added.
Richards believes that although Brexit will affect business in the area to some degree, the status of the City as an international financial center will not be shaken.
London remains the globe’s most attractive financial center despite Britain leaving the EU in less than a year and a half, according to the most recent Global Financial Centres Index, which evaluates 92 financial centers on factors such as infrastructure and access to high quality staff.
HK investors most active
According to estate agent Knight Frank, 92 percent of the Chinese investment in London’s commercial property market comes from Hong Kong.
The latest case in point is Hong Kong billionaire Angela Leong, who bought a historic building in London’s Aldwych area for about 250 million pounds in September.
Leong, who has a net worth of $3.7 billion according to the Bloomberg Billionaires Index, is the executive director of SJM Holdings Ltd., Macao’s third-largest casino operator by revenue.
Some Hong Kong investors even pay extra to purchase London’s premium assets. In August, a private Hong Kong investor acquired 70 Gracechurch Street in the City of London for 285 million pounds, well above the 272 million pound asking price set by vendor Legal & General.
Mark Hedley, director of ICT Sector at China-Britain Business Council, told the Global Times, “The weakening of the British pound means that access to the UK is more affordable,” adding that the fall in the pound’s value after the EU referendum outcome is driving the demand.
Fan Huiyong, the aforementioned chief editor, told the Global Times that the pouring of funds is also part of a wider trend of rich individuals looking to diversify their assets.
Compared to Hong Kong’s big appetite, investments from the Chinese mainland are hindered by guidelines issued by China’s cabinet in August, which regulate overseas activities. Furthermore, the guidelines limit deals in the property, hotel, entertainment, sports club and film industries, stepping up the government’s campaign against what the state planner described as the “irrational” acquisitions of foreign assets.
According to a report compiled by Real Capital Analytics, the leading global provider of capital markets data for commercial real estate, “The demand of Chinese investors for overseas commercial real estate investments will not evaporate, however, the new rules will influence capital behavior and direction.”
Despite regulatory controls, Fan told the Global Times that the investment from the Chinese mainland will be more targeted in the future, and will come from more mature and experienced investors of income producing assets in core markets.
Meanwhile, the Belt and Road initiative is there to provide Chinese investors new investment opportunities in new locations, said Fan.