UK real estate: hot or not? That's the question on investors’ lips in the wake of the vote, by a slim majority of the electorate, to leave the European Union.
Since the vote on June 23, retail investors have demonstrated their unease about UK property by attempting to cash in funds in volumes not seen since the last recession. Retail fund activity in the UK soared by 900%, according to fund platform Rplan, with outflows accounting for 92% of fund movement, and inflows counting for just 8%.
A number of investment managers moved to gate withdrawals or at least deter them with pricing adjustments. Henderson Global Investors, M&G, Aviva and Aberdeen all drew down the shutters in the face of overwhelming demand; Aviva recently confirmed that its fund suspension could last six to eight months, while others, including Aberdeen’s UK Property Fund, have since reopened to trading.
While commercial investors have remained more sanguine, fund managers have been left with an immediate challenge: to sell some assets to meet the demand for liquidity. On the buyers’ side, the plummeting pound has suddenly made prices look keen for investors with euros or dollars to spend.
Rasheed Hassan, head of cross-border investment at Savills, told PropertyEU: ‘Despite a lack of a real discount for prime assets in the UK, which was perhaps anticipated by some, for non-sterling denominated investors a devaluation of currency makes the UK a realistic target and we are seeing deals done at pre-Brexit pricing.’
Debenham's
One of the first significant deals to close after 23 June was the disposal by British Land of its Debenhams' flagship store on London’s Oxford Street to a private investor for £400 mln (€470 mln).
The asset - a seven storey building located near Bond Street Underground Station – is in London’s core West End shopping district. The 33,723 m2 building is let in its entirety to Debenhams until 2039, producing an annual rent of £11 mln. The deal reflects a yield of 2.75%.
'The disposal of Debenhams on Oxford Street reflects our strategic focus on multi-let assets within the retail portfolio,' said CEO Chris Grigg. 'British Land has entered this period of post-referendum uncertainty in a robust position. We have a strong, resilient business with a clear strategy. We have a modern portfolio which is well suited to current and future customer needs.'
British Land's portfolio is 99% occupied and the company has a loan to value of 29.7%. 'Our speculative development commitments are low at 4% of the portfolio and we have considerable flexibility in our development pipeline,' he added.
In addition, British Land said it has exchanged on £99 mln of further retail disposals since end-March, including £79 mln of superstores, reflecting a slight premium on the March valuations. These transactions bring total retail disposals since the year-end to £499 mln.
Oxford Street
Ten days after the British Land deal, Aberdeen Asset Management lifted its two-week trading suspension and sold the long leasehold interest in 355-361 Oxford Street to Norway’s oil pension fund Norges Bank Real Estate Management in an all-equity deal worth £124 mln (€148 mln).
355 Oxford Street, 5,500 m2 retail and office building, has a long leasehold from the City of London Corporation with a 139-year unexpired term. The asset is mainly let to Boots, which occupies 2,926 m2 of retail space and 1,350 m2 of offices. The transaction includes two adjoining buildings, which comprise office, restaurant and retail space totalling 1,200 m2. Norges later said it would be writing off 5% of its UK holdings in response to an ‘uncertainty’ call from external assessors.
In addition to 355 Oxford Street, Aberdeen AM is believed to be selling another major asset in the fund, 10 Hammersmith Grove, for £105 mln.
In the middle of August, Deka Immobilien announced it had successfully closed on One St Peter's Square in Manchester for £164 mln (€190 mln), a class A office building in the centre of the North West city. Purchased from joint owners the Greater Manchester Property Venture Fund and UK real estate developer and centre manager Argent, the building is destined for Deka's open-ended WestInvest InterSelect fund.
Completed in September 2014, One St Peter's Square comprises 26,000 m2 of leasable space over 14 storeys and 65 underground parking spaces. The main occupant is the accounting and consulting firm KPMG. The property is certified BREEAM 'excellent'.
Representing the firm's first acquisition since the Brexit referendum, Deka commented that the price reflected the current market situation. Figures released by the Investment Property Databank show that UK property values fell by 2.4% in July.
Hassan said: 'What has changed for the UK, and its investment market, apart from the decision to leave the EU? Our time zone, currency, landlord friendly leasing structures, English language and market transparency continue to exist and the UK remains to be perceived as a welcoming market in Europe to overseas investors.'
