Hammerson Sells UK Offices; 74 %t Return on 1999 Purchase Price

Real estate investor Hammerson is set to make a 74 percent return from the 134 million pounds sale of a London Docklands office tower in a portfolio reshuffle aimed at unlocking capital for new buys,reports Reuters.

The 16-storey Exchange Tower property, near London’s Canary Wharf business district, has been sold to MGPA Europe Fund III for 3 million pounds more than its valuation at Dec. 31, 2009.

Hammerson is benefitting from a resurgence in investor interest in London offices as prices and rents rally amid increased occupier demand.

“Harbour Exchange has been a good investment for the company over the last decade. However, I believe the capital can be better deployed in other opportunities,” Hammerson Chief Executive David Atkins said.

The 45,000 square metre tower was originally acquired by Hammerson in 1999 for about 77 million pounds and generated rents of 10.7 million pounds at end-2009.

British Land Plans £100 Million London Office Development

With the commercial property market seeing a welcome recovery, British Land are planning to kick start a £100 million development in central London.

Not content with merely speculative plans, 2-14 Baker Street has been snapped up by the property investment company from McAleer & Rushe for £29 million as the base for redevelopment.

The 139,000 sq ft offices on Portman Square, just north of the shopping haven of central London’s Oxford Street will offer a prime location for an expansive office project. Approximately 93,000 sq ft is offered by the existing W1 offices and is mostly vacant.

As part of the sale terms McAleer & Rushe will enter into a joint agreement with British Land wherein the new buyer will be the development manager while the sellers will act as contractor for the project. McAleer & Rushe will also take a slice of the profits when the development begins to take tenants.

Eamonn Laverty of the McAleer & Rushe group was pleased to announce the partnership, saying, “By working with British Land we have brought together a wealth of London office development and construction experience which we believe will produce one of the best office buildings in the coming market, whilst also achieving a development funding solution in this difficult economic climate.”

Property analysts have already estimated a 15 percent profit margin on the development.

Tim Roberts, Head of Offices said of the deal, “This is a great opportunity for British Land to buy into one of the limited number of prime central London locations with planning consent at an early stage in the recovery cycle.We are optimistic about the outlook for rental growth in the West Endoffice market and expect to generate strong returns as we leverage our development expertise.”

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London is Leading the way with a Rental Recovery

Money Marketing reports the the first positive annual capital growth in exactly two and a half years; In one specific market sector, rents already appear to be back in positive territory. The IPD’s figures show that City and West End London office
rents are already back in positive territory, growing by 0.2 per cent and 0.3 per cent respectively in January this year. The Royal Institution of
Chartered Surveyors says January saw the first decline in the amount of office space available for rent in London for two years.

RICS senior economist Oliver Gilmartin said: Surveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years outside the retail sector as the capital continues to drive the recovery. The news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors whom have driven a sharp rebound in pricing since the autumn.

To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases, particularly as prime
yields are rapidly approaching financing costs.

The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back.

Survey for 2011 Predicts Property Dip

UK commercial property values are likely to dip again next year as the poor economy and continued rental weakness curb a strong price recovery seen for 2010, a survey showed.

Property experts polled this month expect prices to decline by 0.6 percent in 2011, compared with predictions of a 2.2 percent rise just three months ago, the Investment Property Forum (IPF) said in its quarterly report.

The price outlook for this year is significantly improved however, with average values seen rising 5.9 percent against the previous prediction of 2.4 percent, said IPF, which surveyed 29 fund managers, property advisors and equity analysts.

British commercial property values fell 5.6 percent over the whole of last year, although prices have rebounded since July including a one percent rise last month, figures from the Investment Property Databank (IPD) showed.

Real estate experts warned last month at an industry seminar the recent upswing in investments in UK commercial properties masks uncertainties and risks that hit the recovery, urging caution when investing in the market.

“There is little evidence of any expectation of occupier demand driving rental growth until 2012 … weak rental value growth forecasts across the sectors are understandable against a back drop of continuing weak economic data,” IPF said.

Forecasters in the IPF survey expect average rents for offices, retail, and industrial properties to fall 4.4 percent in 2010, and to remain almost flat in 2011 with just a 0.1 percent rise before improving 2.4 percent in 2012.

Capital values are also seen rising 2.3 percent in 2012, said the IPF survey, which was funded by top UK property companies including Land Securities (LAND.L), British Land (BLND.L) and Hammerson (HMSO.L).

Total returns from commercial properties — which comprises rental income and capital growth — would hit 13.4 percent this year, before falling back to 6.6 percent in 2011, and 9.1 percent in 2012, IPF said.
Reuters

London Commercial Property Market Dominated by Overseas Investors

Since property owners have had to slash prices for commercial property in the UK, there has been an avalanche of interest from overseas investors. With prices falling by 20% in the downturn, there is no surprise that cash rich investors from abroad are casting a keen eye over the UK commercial property market. The question is whether these bargain hungry investors will continue to take an interest after prices recover and the recession passes?

The answer to this question is almost unequivocally “Yes”. Part of the reason is that the overseas interested parties seem to be in a much stronger financial position than many of their UK rivals. London is the epicenter for overseas investors in commercial property, with CBRE revealing that “73 per cent of commercial property purchases by value in central London last year were made by foreign investors.” In total they poured £5 billion in the UK market in 2009, saving it from an even greater collapse. In the past decade, overseas investors have only really accounted for around half of all transactions.

Among the more eye-catching transactions were the National Pension Service of Korea’s £772.5m acquisition of the HSBC tower in Canary Wharf and sale of the US embassy to a subsidiary of Qatar’s sovereign wealth fund. Although the value of that deal has not been disclosed, it is known that the fund, Qatari Diar, has spent more than £3bn on UK property. It is aiming to spend about £2bn more on primarily British office space.

The Qataris, who also took a 24 per cent stake in Canary Wharf co-owner Songbird Estates last year, are not alone. Having got a taste for high-quality commercial real estate in the City, West End and Canary Wharf during the rough times, overseas investors are set to continue to pounce on London buildings in 2010.

Telereal Trillium Test Investors Appetites

Property investment firm Telereal Trillium has put up for sale 55 UK commercial properties, principally let to the Royal Bank of Scotland (RBS.L), to test investor appetite for larger portfolios, it said on Wednesday.

Telereal, owned by the Pears family, has appointed CB Richard Ellis (CBG.N) to advise on the sale, with a guiding price of 475 million pounds ($758 million) for the properties, including the historic London offices of the Queen’s bank, Coutts.

“Following the purchase of this portfolio two years ago we have had regular enquiries from many parties interested in acquiring single assets,” Telereal group property director Graeme Hunter said in a statement.

“Since the summer however, the level of interest in a larger portfolio transaction has increased dramatically and as such we see the time as being right to test the market’s appetite for this excellent product,” Hunter said.

British commercial property values in November posted the largest monthly increase in 15 years, up 2.4 percent. The market has rebounded since mid-2009, following a two-year downturn that wiped 44 percent off commercial property values. [ID:nLDE5BD1XN]

JPMorgan property analyst Harm Meijer said it was interesting to see larger portfolios being brought to market because of firmer prices.

“This is in line with our view that there remains a considerable overhang of property that may come to market as investment appetite strengthens, and in our view will limit the bounce in prices,” he said.

The company said flagship assets in the portfolio, mainly leased by RBS until 2037 with annual retail prices index (RPI) rental increases, include the London headquarters of RBS-owned private banks Coutts on The Strand, Drummonds on Trafalgar Square, and Child and Co on Fleet Street.

More than 45 percent of the portfolio’s income is derived from assets in London, the company said.

Londons New Commercial Skyline

The Emerging Commercial Towers of London

The Shard
The skyscraper at London Bridge is so called because it will resemble a shard of glass when its 306m (1,004ft) tower is finally finished next year. Of all the ambitious projects launched during the boom before the commercial property sector imploded in 2008, the Shard appears to be one of the few to have survived unscathed.
The lower floors of the structure are already appearing above London Bridge Station. The Shard was intended to be Europe’s tallest building – before plans for two skyscrapers in Moscow were unveiled. It is owned by a collection of Qatari investors and designed by the Italian architect, Renzo Piano. The Shard, which has replaced Southwark Towers, a 100m tower built in 1976, will become the new home of Transport for London.

Walkie-talkie
One of the most innovative, or oddest, designs for a new London skyscraper (depending on who you speak to) is Land Securities’ planned “Walkie Talkie”, a £200m project that won planning consent in 2006. The approval was granted only after the designs were altered, following protests that the 200m (656ft) tall structure would detract from views of St Paul’s Cathedral. Land Securities said yesterday that there was no definite date when construction work might begin.

Cheese Grater
Like the “Walkie Talkie”, there are few signs that British Land’s “Cheese Grater” is likely to be built soon. Initially, the group planned to complete the tower by 2011 but it announced in August 2008 that plans for the building at 122 Leadenhall Street in the City of London had been put on hold. A source close the company confirmed that British Land had no immediate plans to resurrect the project, saying the commercial property sector in London was still far too precarious.

Battersea Power Station
One of the most famous buildings in London, and used by the Bank of England during the Second World War to burn £120m in banknotes to prevent forgery, the plant on the south side of the Thames has seen better days. Several developers have failed to do anything with the site since it ceased producing electricity in 1983. Treasury Holdings wants to transform the area with flats and a shopping centre; the chief problem is transport. Positive noises have been made but, with expected cuts in public spending, the Mayor’s office said yesterday that any transport link would have to be privately funded.

Heron Tower
When completed in 2011, the tower will stand 242m (794ft) tall and spend a brief spell as London’s tallest building, until the The Shard is completed in 2012. Despite the Bishopsgate project not yet being finished, it is already the tallest building in the City, having overtaken Tower42 in early 2009. The joint venture between Heron International and two other independent investors is a fully-funded, fixed-price development that, unlike most, remains on budget and on schedule for completion.

Heron Quays West
One of the most remarkable changes to the London skyline since the Luftwaffe arrived in 1940 was the redevelopment of the Docklands into a financial district to rival the predominance of the City. Since building started in the 1980s, a number of leading financial institutions have moved to the area. Canary Wharf Group continues to develop the site and has been given planning permission for a new, two-tower building known as Heron Quays West, which will stand 156m (512ft) tall when completed. However, little progress has been made, and a spokesman for the group confirmed yesterday that there were no immediate plans to start building on the site. The group also admitted there had as yet been no serious expressions of interest from potential tenants.

Helter Skelter
When completed in 2013, the Helter Skelter will be one of the tallest building in the City, at 288m (945ft). Architects had planned for it to top 307m (1,007ft) but concerns from the Civil Aviation Authority resulted in the height being chopped. Originally developed by Union Investment, the property was bought by Arab Investments during the early stages of construction. The new owners altered the design and building work began afresh in 2009.

Riverside South
One Docklands skyscraper that is more likely to be built soon is Riverside South. The land was sold to investment bank JP Morgan for £237m in 2008. Plans exist for the bank to use the 214m (702ft) tower as its European headquarters from 2013. The office will then become the tallest building in Docklands, beating One Canada Square by one metre (although One Canada Square will appear taller on the London skyline). The problem is JP Morgan’s failure to commit. A source at the bank said last night that a decision on its new headquarters would be taken later this year, based on economics and London’s position as a financial centre. He rejected the idea that the bank was annoyed by higher taxes on City firms.

Big Firms Return To Central London

After a long downward spiral lasting the better part of a year, the London real estate market seems to be finally looking at a turnaround. A host of companies including Google and Royal Dutch Shell are reported to be scouting around for space in the City for their offices. This comes as welcome news for the London real estate market reeling under dropping rentals and rising vacancy levels.

According to real estate consultants Cushman & Wakefield, Royal Dutch Shell, the oil company, is looking at around 220,000 sq ft of office space while Google needs around 145,000 sq ft. Apart from these two, other interested buyers are also present in the market, such as insurer Aon Corp and Centaur Media, the publishing house.

There were a number of buyers in the beginning of 2009 who had held off making decisions due to the downward trend in the market. These same buyers now seem to be ready to commit, indicating a turnaround for offices to rent London likely in the coming months. According to industry figures, rental take-up for office space in the City has gone up by nearly 65% in the third quarter of the year, as compared to the previous quarter.

Property rates as well as occupancy levels during the second quarter were at their lowest in over ten years, and real estate management firms in the City like Hammerson, British Land and Land Securities were some of those most affected by the downturn. The new demand is likely to push up office space requirements by over 9 million sq ft, a rise of nearly 20% over the beginning of the year.

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Gerald Ronson And Boris Johnson Launch ‘Peak’ Building

The Peak is a new headquarters office building of approximately 77,866 sq ft (7,234 sq m), together with 19,096 sq ft (1,774 sq m) of high quality retail on the ground and lower ground floors, which has been pre-let.

The building accentuates and maximises its peninsula location providing a distinctive and identifiable landmark.

The building will be completed in Autumn 2009, providing new standards of energy efficiency, sustainability and flexibility of use.

Boris Johnson said “The opening of The Peak today is a …powerful expression of the way London is powering out of the recession. It’s another great step forward for Victoria as a prime central London office market and a strong sign of confidence in the economic future for this area”