Three years ago, construction finished on a 46-story tower at 122 Leadenhall Street in London’s financial district – directly opposite the Lloyd’s insurance market building. The Grade-I listed structure was hailed by some as a masterpiece resembling the ‘hi-tech’ architecture movement of the 1970s but ridiculed by others as an eyesore more comparable to an oil refinery.
Both buildings were designed by UK architect Richard Rogers, but were completed in starkly contrasting circumstances: Lloyd’s opened a month after the seismic deregulation of the UK’s financial markets in 1986, while 122 Leadenhall, aka ‘The Cheesegrater,’ opened amid the uncertainty of the post-global financial crisis era.
The financial climate in the UK, following last year’s surprise Brexit vote, is similarly uncertain. However, concern felt by domestic investors about the future prosperity of UK real estate assets has done little to dampen the appeal for their Asian counterparts.
That notion was reinforced last month when CC Land Holdings, a Hong Kong-Listed, Shanghai-based real estate investment firm agreed to buy the trophy asset for around
£1.15 billion ($1.41 billion; €1.35 billion) from British Land, the UK REIT, and Oxford Properties, the real estate business of Canadian pension Ontario Municipal Employees Retirement System.
The deal would be the biggest-ever real estate transaction in the City of London and the second largest in the UK behind sovereign-wealth fund Qatar Investment Authority’s acquisition of the London headquarters of HSBC Holdings, a skyscraper in nearby Canary Wharf, for £1.2 billion in 2014.
Given the size of China’s heavyweight real estate investors, some observers were surprised that CC Land – a relatively small firm by Chinese standards, with around $13 billion in assets under management – could secure such an esteemed asset in a global city. But the fact it pulled off such a feat underlines the nascent investment power of Chinese investors and firms.
Even so, with domestic and European investors holding fire on UK assets, as Britain engages in leaving the EU, some onlookers question why Asian capital would be willing to take on the risk of buying such a sizeable asset in the current climate.
Sources tell PERE the reason partly lies both in China and the UK. It is widely anticipated the yuan will soon be purposefully depreciated by Beijing, a move which has already seen Chinese investors park vast sums of capital overseas. Many favor doing so in the UK because of its good rule of law, transparency, as well as a sense of familiarity with the London market. Returns are also a factor, with one commentator suggesting that prime yields in China and Hong Kong generally “start with a two,” whereas in the UK, they “start with a four.”
The building lies in a section of The City dominated by insurance firms. Indeed, one of the first occupiers to take up floor space was Aon, which relocated its global headquarters from Chicago, moving 3,000 staff in the process. Fellow insurer Amlin and oil and gas giant Petredec soon followed and the building eventually attracted the highest rents ever paid in The City, more than £100 per square foot. Last year, the property generated approximately £12.7 million in rents.
Lots in a name
The Cheesegrater originally garnered its nickname because of its distinctive sloping shape, designed to protect sight-lines to St Paul’s Cathedral, one of 13 protected vistas in the UK capital (others include Westminster Palace and the Tower of London). The building also continued a now entrenched UK tradition of informally nicknaming real estate, following on from 30 St Mary’s Axe (The Gherkin); 20 Fenchurch Street (The Walkie Talkie); and 110 Bishopsgate (Heron Tower). Proposed towers in the city include 1 Undershaft (The Trellis) and 52-54 Lime Street (The Scalpel).
Industry observers told PERE they had been closely monitoring the Cheesegrater’s potential sale as a barometer for the UK property market following the Brexit vote. By their reckoning, the sale, once completed, could spur a rush of further offloads in The City.