Investors on shopping spree for landmarks in London

Purchase of commercial property by Chinese buyers has been accelerating at an unprecedented rate

First, it was the Cheesegrater; then, the Walkie-Talkie. Now, industry analysts are asking what will come next as Chinese commercial property investors snap up London landmarks. The Gherkin? The Shard?

The buildings are all high-rise towers in and around the City, which is London's main financial district.

China's LKK Health Products Group paid ￡1.28 billion ($1.7 billion; 1.43 billion euros), the biggest-ever price tag for a UK building, when it bought the building colloquially known as the Walkie-Talkie on July 26.

The massive purchase followed the sale earlier this year of the Leadenhall Building, which is known as the Cheesegrater.

The other two buildings, also nicknamed for their unique shapes, are not for sale, but neither was the Walkie-Talkie before LKK made its owners an offer they could not refuse.

The purchase of commercial property in London by Chinese buyers has been accelerating at an unprecedented rate.

The latest figures from real estate agent CBRE show Chinese investors bought UK commercial property worth ??4.5 billion in the second quarter of 2017, a sixfold increase year-on-year.

Meanwhile, statistics from real estate agent JLL show Chinese buyers invested 3.4 billion in London properties overall in the first half of this year, or 42 percent of all purchases.

Eric Pang, head of JLL's China Desk, says, "We continue to witness the emergence of Chinese capital globally."

He says he expects China's share of investment in the UK to continue to rise.

Depreciation of the pound because of uncertainties about the UK's exit from the European Union is a key contributing factor, helping Chinese investors buy sterling assets at a discount.

Recent transactions also demonstrate the popularity of safe assets in prime locations.

The Walkie-Talkie, for example, is considered a safe asset because the building's space is fully leased to investment-grade-rated commercial tenants. The shortest lease in the building is for 13 years, meaning LKK has a guaranteed income for many years to come.

CC Land bought the Cheesegrater for ￡1.15 billion in March, and China Resources Land bought 20 Gresham Street in May for ￡315 million.

Critics have questioned whether Chinese investors have been buying trophy assets at inflated prices, especially in light of the fact that the sellers of both the Walkie-Talkie and the Cheesegrater said they sold for exceptionally good prices.

But James Beckham, head of London capital markets at real estate agent Cushman& Wakefield, says Chinese investors can still enjoy good returns, despite the high prices they paid.

"The British developers have done a lot of work in the property development process, so their profit margins are justified. For the Chinese investors, they are looking for very safe, long-term assets, and they are getting that," Beckham says.

Rental yields for both the Walkie-Talkie and the Cheesegrater are around 3.4 percent, which is favorable compared with similar assets in other geographical regions, Beckham says.

Sammy Lee, LKK's chairman, says he was delighted with the Walkie-Talkie deal. The company says it paid a reasonable price for a long-term investment.

Meanwhile, the City's local government team has invested heavily in strengthening relationships with landlords, developers and tenants, to make properties in London's financial district more attractive, as part of a campaign to uphold the image of London as a global financial center, despite Brexit uncertainties.

Efforts are focused on embracing "co-working, flexible office spaces and the new wave of technology, media and telecom companies attracted to the City", says Chris Hayward, chairman of the planning and transportation committee at City of London Corporation.

cecily.liu@mail.chinadailyuk.com

(China Daily 08/04/2017 page27)