Large global investors are turning their hand to major developments in London rather than simply buying core income-producing assets.
One of the most recent examples is the Canada Pension Plan Investment Board (CPPIB), whose local partner, Land Securities, recently announced the commencement of the £768 million (€898 million; $1.2 billion) first phase of the Victoria Circle project. Totaling 727,000 square feet of offices, retail and modern luxury apartments on the west side of London, CPPIB said it is part of the pension fund’s strategy to own and develop properties for the long term.
Meanwhile, Qatari Diar, the development arm of the Qatar Investment Authority, and local partner Canary Wharf Group won backing over the summer from London’s mayor to redevelop the Shell Centre site on the south bank of the River Thames. In total, around 800,000 square feet of office space will be developed, along with 80,000 square feet of retail and residential space incorporating up to 877 new homes.
There are more examples besides with a case in point being Oxford Properties, the real estate subsidiary of the Ontario Municipal Employee Retirement System (OMERS). It has formed a £320 million joint venture with The Crown Estate to develop two blocks in St James in west London.
“These sort of offshore investors are showing their willingness to accept some development risk to get the assets they want,” said Jeremy Walden, a real estate partner at the law firm of Herbert Smith Freehills, which advised on both the OMERS and CPPIB deals. “However, they are doing so in joint ventures with well-established counterparties.”
Brokers are reporting encouraging signs in the office market, with take up in central London in July totaling 1.7 million square feet – up 103 percent on the previous year. Pre-lets continue to drive take-up in most markets, added Richard Smart, senior director at brokerage firm CBRE.
No doubt encouraged by such signs, several more joint ventures were struck up over the summer, with the new trend being owners of central London properties selling only partial stakes in assets, hoping to recycle and pump new capital into further investments with a new financial partner. CPPIB and the BT Pension Scheme have structured such a venture for central London offices. The Canadian pension is buying a 50 percent stake in eight offices from the telecom workers pension for £173.9 million, with a view to doubling the size of the portfolio in the future.