There are many business centers in Europe, including Paris, Frankfurt, Berlin and Brussels, to name a few. When it comes to global institutions investing in European property, however, one city stands head and shoulders above the rest – London.
Just this past week, further evidence emerged of just how much more foreign investors value London real estate over that of other markets. Indeed, no less than four major real estate purchases totaling some $1.6 billion were made or announced by sovereign wealth funds or foreign pensions. Among them:
• The Kuwait Investment Authority, through its St Martins Property arm, acquired 5 Canada Square, located at London’s Canary Wharf, from private equity firm Evans Randall for nearly £385 million (€448 million; $608 million);
• Samsung Asset Management – in its UK property debut – entered into an agreement to buy 30 Crown Place in the City of London from German closed-ended fund manager Hannover Leasing for £145 million;
• Malaysian state pension Kumpulan Wang Amanah Pencen reportedly won the bidding for 88 Wood Street, acquiring the property from Rockspring Property Investment Managers for $357.2 million; and
• Ivanhoé Cambridge, the real estate subsidiary of the Caisse de dépôt et placement du Québec, teamed up with TPG Capital to buy the Woolgate Exchange for £265 million.
Perhaps that shouldn’t be so surprising, given recent investor sentiment surveys by the Association of Foreign Investors in Real Estate (AFIRE) and Ernst & Young. In the AFIRE survey, released early last month, foreign institutions favored mainly large US cities, with only London making the list of top five investment destinations and coming in second to New York. Meanwhile, Ernst & Young’s survey of investors found that the main beneficiaries of increased investment activity in Europe will be non-Eurozone 'safe havens', notably the UK – identified by more than 90 percent of those surveyed as 'attractive' or 'very attractive'.
Still, there is much talk regarding global institutions looking at and expanding to other European markets. Over the past year, calls for diversification could be heard among consultants, advisors, fund managers and the institutions themselves, particularly as the competition for top-notch properties in London remains heated and cap rates continue their decline below 5 percent for prime office and retail assets. Nevertheless, it seems these institutions are not as pre-occupied with cap rates as they are with securing long-term sources of stable income, which London property provides.
Furthermore, when looking for diversification, these institutions can turn to commingled funds. Through such vehicles, their risk exposure to markets that are less stable than London is minimized. However, when it comes to taking on all or the majority of the risk via direct investments or joint ventures, only the most stable markets will do and, in Europe, that means London.
So, despite all the talk of diversification, when it comes to global institutions looking to invest in European property, London is still where it’s at.