Some of the world’s biggest property investors are already dumping London assets post-Brexit and the potential UK slump could bring a boon for US asset holders as cash-rich Chinese investors look for a new place to park their funds.
The London real estate fire sale follows the suspension of trading in £15 billion ($19.8 billion) in at least six UK property funds last week after investors rushed to cash in the real estate investment vehicles in the face of post-Brexit worries.
The market uncertainty in the wake of Britain’s June 23 vote to exit the European Union is expected to prompt some Chinese investors, who have played a growing role in international capital markets in recent years, to turn their attention to property deals in the US.
Asset Sales Follow Fund Freezes
TH Real Estate, which manages property investment firm Henderson’s £3.9 billion UK Property PAIF fund, this week put 440 Strand in London on the market for £220m. The proposed sale of the prime asset followed just one week after the fund halted trading under a siege of investor redemptions.
The disclosure regarding 440 Strand was preceded a day earlier by Aberdeen Asset Management putting the largest asset held by its £3.2bn UK Property Fund, 355 Oxford Street in London, on the market for £145m. On 6 July, Aberdeen cut the price of its fund by 17 percent and temporarily froze withdrawals, according to an account in London’s Estates Gazette. The asset manager extended that suspension this week and also has put its second largest UK asset on the market for £105m.
Analysts at Swiss financial services firm UBS have tentatively projected a fall of up to 20 percent in London office values and 15 percent for British retail values. In a June 24 note, BlackRock predicted a possible drop of around 10% in British commercial property values over the next year, led by declines in the central London market.
Chinese Among Major London Players
Among Chinese investors that could feel the pain from such a scenario are Beijing-based China Life, which partnered with Brookfield Property Partners to purchase London’s Aldgate Tower for £346 million ($497 million) in April this year, and HNA Group, which in April acquired a Canary Wharf building serving as the global headquarters for Reuters news agency, for ₤131 million ($189 million).
Chinese investors plowed a total of US$1.44 billion into major commercial real estate projects in Britain, all in the office sector, during the first half of 2016, according to figures from Real Capital Analytics.
UK Loss Could Be US Gain
For many foreign investors, these challenges could boost the appeal of real estate assets across the Atlantic. Prices of real estate investment trusts (REITs) in the US jumped following the Brexit referendum, while REIT prices plunged in Britain, highlighting a flight to security and yields in the US market, which is widely viewed as a global safe haven.
“Both the UK and the rest of the EU have been prime competitors for real estate investment,” commented Mark Landis, Managing Partner of New York law firm Phillips Nizer LLP, who also chairs the firm’s Real Estate Practice, last week. “With the present uncertainty in Europe, I expect increased interest in US investment opportunities, which may lead to upward pressure on prime opportunities, including multifamily, office and retail.”
During 2015 Mainland Chinese investors had already shifted their attention to New York, investing $5.4 billion in Manhattan commercial real estate deals, according to figures from Real Capital Analytics. By contrast, mainland investors put $1.6 billion into London real estate during the same period, with many analysts saying that Chinese players were losing out on deals to faster-acting local players and international investment houses.