Construction work continues on skyscrapers at the Canary Wharf financial, shopping and business district in London. (Photographer: Chris Ratcliffe/Bloomberg)

Singapore, Korea Say ‘Hello London’ as China Exits

(Bloomberg Opinion) -- Brexit worries may be damping sentiment in Europe but in Asia, real-estate investors don’t appear too concerned.

While Chinese purchasers of London property have put away their wallets as capital controls bite, buyers from Hong Kong, Singapore and South Korea are picking up the slack.

Victor Li, who succeeded his billionaire father Li Ka-shing as head of the CK group of companies, purchased UBS Group AG’s headquarters in the City of London financial district for 1 billion pounds ($1.3 billion) earlier this month, while Singapore’s Ho Bee Land Ltd. splashed 650 million pounds on a 21-story office building called Ropemaker Place.

In March, a venture between South Korea’s Mirae Asset Daewoo Co. and NH Investment & Securities Co. bought Cannon Bridge House for 248 million pounds, while the Mirae group (which owns Mirae Asset) last month acquired a 340-million-pound building from Blackstone Group LP. Korea Investment & Securities Co. last week successfully bid for a 15-story office building for 200.5 million pounds.

According to CBRE Research, London office buildings worth 7.23 billion pounds have changed hands this year, with buyers from Asia accounting for 60 percent of the action, the most ever in a half-yearly time frame.

It’s a marked shift from 2014 and 2015, when China was the biggest source of Asian buying in London. Now, conglomerates like Dalian Wanda Group Co. are in exit mode. (There’s been only one big China deal this year — Beijing’s purchase of an office complex on the edge of the City of London’s financial district for its new embassy.)

Taking the crown to a large extent are investors from Hong Kong, snapping up iconic buildings such as The Cheesegrater at 122 Leadenhall Street and the Walkie Talkie, which set a new record for a single U.K. office site.

Hong Kong developers can’t be blamed for looking further afield. The city is home to the world’s most expensive commercial real estate and vacancy rates are currently around the 4 to 5 percent mark, below the long-term average of 6.5 percent, according to CBRE Executive Director James Beckham.

London also appeals to investors in Singapore, who, like buyers from Hong Kong, are familiar with British common law and may have sent their children to school or university in the U.K.

South Koreans, meanwhile, seem to be favoring the U.K. over the U.S., although New York does still remain a popular destination for their funds. It also comes down to affordability — it’s worth remembering that since the financial crisis, the Bank of England has raised rates only once while the Federal Reserve has hiked seven times.

London, and New York, also typically have longer leases: around 10 years on average, versus about five in Paris, Frankfurt and Tokyo, and as little as two in Beijing. Occasionally, as CK Asset Holdings Ltd.’s purchase of UBS’s headquarters showed, investors can get even more. That deal included a 17-year lease, with the possibility of raising rents every year to keep pace with inflation.

While London may be the worst-performing market in the U.K. for home prices, the office sector looks set to keep those Asian landlords coming.

©2018 Bloomberg L.P.

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