Brexit opportunities Targeting London Real Estate

Despite the doom and gloom in Britain over Brexit, foreign investors – in particular the Germans and Chinese – are seeing opportunities in the country’s fast recovering commercial property sector.
Quelle: Bloomberg
The Olympia exhibition center is in need of modernization. German investors have a plan.

Brexit, Britain's withdrawal from the European Union, has hung like a dark cloud over London, no more so than in the real-estate market.

After the referendum in June last year that saw the country vote to leave the European Union, British real estate analysis firm Prequin asked more than 90 major investors how they would react to the withdrawal. About half of the respondents, all of whom already owned properties on the island, said they would be investing less in the future.

We don't know whether the Bavarian Chamber of Insurance, the Bavarian Pension Fund and DekaBank were among the skeptics. But if so, they aren't anymore. Less than a year after the vote, they are all investing heavily in London.

Last week the Bavarian companies, together with Deutsche Finance International and asset management firm Yoo, acquired the Olympia London Exhibition Center for €330 million ($352 million). Two months earlier, Deka, a subsidiary of savings bank association, bought the new London headquarters of Facebook for the Westinvest Interselect and Deka Immobilien Europa open real estate funds. It paid €435 million.

The London property market is regarded as fundamentally robust and should recover quickly from real or supposed crises, including Brexit.

Last year, fund managers still needed to justify investing in Britain. It was widely expected that Brexit would lead to a slump in the British economy and vacant office space, leading to declining rental income and loss of value.

The page has turned, however, as real estate investors recognize that London's property market remains strong. It is regarded as fundamentally robust and able to recover quickly from real or supposed crises, including Brexit. And even if it is officially frowned upon to tie real estate to currency speculation, it is undeniable that the weak pound sterling makes London appealing.

This also applies to Chinese money. According to media reports, the consortium that acquired the Olympia Center prevailed against the Chinese HNA Group, which recently bought a stake in Deutsche Bank. But even if HNA didn’t succeed this time, Chinese money continues to flood into the British capital.

In February, property manager TH Real Estate sold an office complex at Paddington railway station to Hong Kong-based CC Land Holding for about €325 million. The tenants include Vodafone and Statoil. And this was small potatoes compared to the €1.3 billion that Chinese real estate tycoon Cheung Chung-Kiu spent in March on the Leadenhall Building, famous for its resemblance to a cheese grater. With 90,000 square meters and 48 floors, it's one of the largest buildings in London.

Unlike these modern office buildings, the Olympia exhibition center needs a little attention to bring it up to standard. Opened in 1886, Olympia Hall was considered the largest British building made of glass and steel at the time. In addition to exhibition areas, the approximately 14-hectare property now includes shops, restaurants and a hotel. The new owners no doubt want to expand the capacities of these facilities, though the consortium hasn't commented on the details yet. But with London's market on the mend, one thing seems clear: Higher rental income should ensure the complex will be more valuable in the future than it is today.

Reiner Reichel is a Handelsblatt editor specialising in real estate, closed-end fund and system models. To contact the author: [email protected]