COMMENT Another day, another £1bn-plus, sub-4% London skyscraper bought by a Hong Kong investor.
This week LKK Health Products Group, part of Hong Kong sauces and condiments giant Lee Kum Kee, announced that it was buying the Walkie Talkie (sorry, 20 Fenchurch Street, EC3) for almost £1.3bn –the biggest ever individual office acquisition in the UK. It was a deal that, at a net initial yield of 3.4%, makes CC Land’s £1.1bn, 3.45% acquisition of the Cheesegrater (sorry, Leadenhall Building, EC3) in May seem like yesterday’s chip paper.
And with a £1bn, sub-3% sale of the Gherkin (30 St Mary Axe, EC3), anticipated at some point this year, and the smart man’s (or woman’s) money on an Asian buyer, it is likely that our eyebrows will be raised even further.
Big money being spent by Hong Kong and Chinese investors pulled to the UK by the fall in value of the pound and pushed out of their homeland through nervousness at their own economy and capital restrictions makes for great headlines, great returns for vendors (and their shareholders), and great fees for agents.
But what happens if (when?) that big wave of capital stops? Is the City being buoyed by Asian investment? Are there other buyers waiting in the wings and are they willing to pay the same above-valuation prices – some 13% above the March 2017 valuation in the Walkie Talkie’s case – that this latest round of Asian investors are willing to pay?
Chinese and Hong Kong investors have spent £2.3bn (plus this latest £1.3bn) on City offices during the first half of the year. Without the Walkie Talkie deal, that is 43% of total investment, according to Cushman & Wakefield. How much higher can that go before the end of the year?
The Germans have been increasing their activity in London over recent months, accounting for almost £980m of City investment in the first six months of 2017, compared with the barely noticeable £160m spent by German funds in the whole of 2016. But would they be willing to pay the kind of yields the Asian buyers are now making the norm for trophy towers? They usually feel more comfortable at least 100 basis points higher at 4-5%.
Some believe that without this big-spending investor group, values could tumble in the City. And it is no secret that Landsec is waiting for a fall in the market at some point. Why else would you be collecting all this money (and, okay, return some £475m of it to shareholders) and just sitting on it until you decide to “move quickly to capitalise on opportunities whenever they might arise”.
Until then, perhaps we just sit back and let the money roll in and worry about tomorrow tomorrow.
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