Private investors eye UK commercial property amid Brexit fears

Private investors eye UK commercial property amid Brexit fears

Private investors from the Middle East and elsewhere have spotted an opportunity in pre-referendum jitters affecting the London commercial property market — seizing the chance to buy landmark buildings while large institutions hold back.

3 Associates, a UK family office, is one example, seeking to deploy £500m that combines its own capital with that of overseas partners into real estate in London and the M4 corridor in the coming months.

It is in talks to buy further central London assets ahead of the June 23 vote after buying 1 Pall Mall East just off Trafalgar Square — a 1930s building that is home to McKinsey’s London headquarters — with Sidra Capital, an investment vehicle of the Saudi Bin Mahfouz family, for £85m last month.

3 Associates’ planned buying spree bucks a trend of falling investment: the flow of capital into central London office buildings dropped by more than half in the first quarter of 2016 from the previous quarter, leading a drop in overall UK commercial property investment.

But, as a private family office, 3 Associates is not alone in seeking out investments, said Richard Divall, head of cross-border capital markets at the property advisers Colliers.

“Anyone who requires a rigorous board approval process is struggling before the referendum, but family office capital and other entrepreneurial capital is viewing this as an opportune time,” he said.

The property investment company of the Hong Kong billionaire Joseph Lau bought Kleinwort Benson’s Mayfair office in March and is viewing more London assets, while a consortium of Hong Kong families is reportedly in the process of buying a building on Cheapside close to the Bank of England.

Jesdev Saggar, managing director at 3 Associates, said his company could have been outbid for the Pall Mall building, sold by a German investment manager, at a time when large investors were less nervous about the possibility of “Brexit”.

“It was a good deal, it was off-market and it was swift. That was partly the result of the way that Brexit is being publicised and the concerns around it,” he said.

There will be a hiccup if Brexit does happen but I don’t think we’re going to fall into some kind of vortex of economic decline

- Jesdev Saggar, 3 Associates

“There are a lot more opportunities being presented to us. Some large funds are rebalancing in case the vote goes the other way and that means we can look at assets we would never typically have access to.”

The comparative weakness of sterling has made pricing look especially attractive for overseas buyers, he added.

Institutions such as France’s Axa have expressed caution about buying UK real estate in the run-up to the referendum; at least two big German investors and one Taiwanese have pulled out of deals over Brexit concerns, said Mr Divall.

But other private investors remain active. Digby Flower, chairman for UK & Ireland at the property advisers Cushman & Wakefield, said his company is advising on the imminent sale of 6 Bevis Marks, a City of London office building, for £220m to an overseas private investor.

Mr Saggar said he was confident of the prospects of his investments in London on a five-year horizon, even if voters choose to leave the European Union. “There will be a hiccup if Brexit does happen but I don’t think we’re going to fall into some kind of vortex of economic decline,” he said.

Source: Financial Times