The most recent deal with the Chinese goes against the initially pessimistic outlook for post-Brexit London and ‘points to top of the market’.
The UK voted last year to leave the EU, causing the London office property to become a spotlight for investor panic. Consequentially, shares in the capital’s developers had dropped drastically overnight.
Yet this month’s deal to sell the Leadenhall Building, also known as the Cheesegrater, clearly conflicts with previous gloomy expectations. Furthermore, it set a record for a City of London office asset, becoming the largest building in the UK sold to Chinese buyers.
CC Land, the Hong Kong-listed company of Cheung Chung-kiu, a Chinese property magnate, bought the building for £1.15bn, simultaneously setting City records with its price per square foot — £1,885, according to Morgan Stanley — and its yield, reportedly 3.4%.
The Cheesegrater’s sale could give an indication as to how the top end of the market will be priced, like the sale of the HSBC Tower in Canary Wharf for £1.09bn did in 2014.
Analysts have called the price paid for the Cheesegrater “extraordinarily high” but expect Brexit to decrease London offices values in the near future. The Employees' Provident Fund which is looking to sell office building Tower Bridge House, commented: “We believe the values of these buildings are at their peak.” This sale is also likely to encourage other owners of landmark buildings in the Square Mile to sell while prices remain high, agents say.
An auction was being carried out for half of the Cheesegrater owned by British Land. Mr Cheung managed to outbid rivals and convinced the other owner, Canada’s Oxford Properties, to sell.
“The investor clearly wanted outright ownership of the freehold and was prepared to pay for it,” says Tony Gibbon, partner at a London real estate advisor.
Alistair Meadows, director of UK capital markets at JLL, foresees a “trigger effect where other owners or partial owners of super-prime buildings would now consider selling”. Nick Braybrook, head of City capital markets at Knight Frank, adds: “This, to a degree, moves the pricing of other big assets in central London.”
Morgan Stanley, who owns a 11.7% share of 20 Fenchurch Street, known as the Walkie Talkie, has renewed efforts to sell his share after waiting for the storm of the Brexit vote to pass. The Walkie Talkie is one of the few London properties considered “super-prime” on the level of the Cheesegrater.
Other City assets on sale include 20 Gresham Street, let to ICBC Standard Bank, which, like the Cheesegrater, is a freehold asset. Axa Investment Managers, its owners, are selling for almost £315m. EPF is selling Tower Bridge House, a building let to Marsh & McLennan, the insurance group, for about £220m.
It has been speculated that the few super-prime buildings available do not match demand. A consultancy company has accounted for 32 investors in search of London commercial properties worth £250m or more, with Chinese and Hong Kong buyers in the majority.