14 St George Street
Chinese Estates Holdings has sold an office block in London’s posh Mayfair area to local developer and investor Oval Real Estate for £125.4 million ($160.9 million), with the asset changing hands at a 7 percent discount to its £135 million guide price.
The developer controlled by the family of fugitive tycoon Joseph Lau began marketing 14 St George Street in London’s West End two months ago, after average occupancy in the freehold property fell to 81.7 percent in the first half of the year from 98.5 percent in 2023, according to disclosures by the Hong Kong-listed firm. Oval declined to comment on the transaction.
“As the Group is principally engaged in, among others, property investment and development, the Disposal is in line with its strategy to make good use of and manage its resources to better develop its property portfolio,” Chinese Estates said in a filing on Thursday. “The Disposal allows the Group to re-allocate the proceeds for other investment opportunities when they arise and adjust, if needed, the overall strategy on its investment portfolio when the market conditions warrant.”
Chinese Estates announced the disposal a day after it released its results for the first half of the year, which saw the developer swing from a HK$147 million profit in the first half of 2023 to a HK$422 million loss. The shortfall, which followed a 93 percent plunge in net profit last year, was attributed to a 28 percent year-on-year slide in revenue and fair value markdowns on its investment properties in Hong Kong.
Oval Scales Up
Chinese Estates is selling the property for £2,418 per square foot, which represents a 3 percent premium to the £121.7 million (£2,347 per square foot) price it paid to acquire the asset from UK investment firm Aberdeen Asset Management in 2016. The consideration is roughly equivalent to the property’s independently appraised value of £125 million as of 5 August.
Former Chinese Estates chairman Joseph Lau
Under the terms of the transaction, Oval will also repay £22.9 million of bank loans and £96.4 million of intra-group debt owed by the property’s holding company. Chinese Estates intends to apply the HK$1 billion in net proceeds from the deal towards general working capital, and expects to record a net expense of HK$4.3 million from the disposal.
Situated a 5-minute walk from both Bond Street and Oxford Circus Underground stations at the intersection of St George Street and Maddox Street, the property has a net internal area of 51,861 square feet (4,818 square metres) across five floors and a lower ground level.
London-based Oval, which develops, manages and invests in office, industrial and residential properties across the UK, is buying 14 St George Street after it teamed up with US investment firm Elliott Management in January to acquire a set of 27 assets from Langham Estate, a sprawling collection of West End commercial and residential properties owned by Hong Kong property tycoon Samuel Tak Lee.
Oval and Elliott paid over £300 million for the 430,000 square foot portfolio of office, retail, leisure, educational, medical and residential properties. Lee had put that portion of Langham Estate up for sale in August 2023 at an asking price of £500 million.
London Project in Limbo
Chinese Estates’ disposal comes as the developer is reportedly weighing an exit from its flagship office redevelopment project at 120 Fleet Street in the City of London after having earmarked an investment of £429 million in 2022.
The project comprises the River Court office block, which served as the former European headquarters of Goldman Sachs, and the adjacent Daily Express Building, with Chinese Estates planning to redevelop River Court into a 21-storey tower with 540,800 square feet of office space and 18,600 square feet of retail space.
Demolition of River Court was completed in December, but construction stalled after Chinese Estates and contractor Lendlease reportedly failed to come to agreement on pricing.
Other London assets in Chinese Estates’ investment portfolio include a retail, office and residential property at 11-12 St James’s Square, as well as a retail, office and residential property at 61-67 Oxford Street and 11-14 Soho Street.
Lau’s brother Thomas has also invested in the London market, purchasing 1 St James’s Square asset in 2020 through his Hong Kong-listed department store operator Lifestyle International Holdings.
Retreat From London
Chinese Estates’ disposal comes as London’s office market begins showing signs of recovery with average citywide prime rents rising 3.8 percent from the end of 2023 through 30 June and 5.5 percent year-on-year, according to a July report from Colliers.
Despite the citywide momentum, vacancy in the West End increased 60 basis points quarter-on-quarter to 7.9 percent in the second quarter, the highest level since the fourth quarter of 2003, after 672,000 square feet of new completions were added to the market during the quarter, according to a July report from Savills.
Battered by high interest rates and the rise of remote working, London’s office market continues to see subdued investment activity, with the city’s £1.6 billion of asset trades in the second quarter remaining 55 percent below the 10-year quarterly average. Colliers expects investment volumes to remain sluggish in the second half of the year.
Chinese Estates and Lee are the latest Hong Kong-based investors to divest UK assets amid property slumps both in London and at home, marking a reversal from the influx of Asian investment into the British capital in the years leading up to the pandemic.
In June, a private fund backed by a number of Hong Kong tycoons including New World Development’s Cheng family, Wharf Real Estate’s Woo family, and Far East Consortium International chairman David Chiu, cut the asking price for 3 St James’s Square, a grade-A office building located a 15-minute walk from 14 St George Street, by 13 percent. Far East Consortium also sold a pair of sites in Manchester in May for £17.24 million.
Earlier this year, Hong Kong property investor Lai Wing-to, known colloquially as the “Ten Billion Shop King”, began marketing a trio of commercial properties in the West End area known as the “Trinity Portfolio.” Those assets include Standbrook House, a 23,625 square foot property in the Bond Street luxury retail district that serves as the flagship store of luxury watchmaker Richard Mille.
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