Overseas Buyers Poised To Ignite UK Capital Investments Mkt

The UK capital investments real estate sector could be gearing up for fierce competition from buyers as funds, expecting more distressed property to come to market in the next two years, plan to snap up prime properties in hope of a recovery

"The UK Capital Investments Market is attractive to overseas equity as values have fallen 45% peak-to-trough" and sterling has lost ground this year against major currencies such as the U.S., the euro and the yen, said James Thornton, founder of Mayfair Capital Investment Management, adding that "it makes for a very liquid market."

Thornton said he saw U.S. and Japanese investors returning to the U.K. market, as well as German open-ended funds, which traditionally have been prominent U.K. real-estate buyers.

According to CB Richard Ellis, 82% of the investors in the Central London office market in the third quarter were international, with U.S. buyers the most active, dominated by Blackstone Group LP???s (BX) acquisition in September of a 50% stake in British Land PLC's (BLND.LN) Broadgate Estates for GBP77 million plus the assumption of GBP987 million of debt.

Mayfair Capital recently has teamed up with Dallas-based property fund manager L&B Realty Advisors, which manages $4 billion of U.S. pension funds, to invest $250 million of equity from U.S. institutions into U.K. property over the next two years.

BNP Paribas Real Estate, the property adviser, said that planned new opportunity funds formed this year could have almost GBP18 billion to spend globally on commercial property, and GBP5 billion of that may be targeting property in the U.K.

Most of the opportunity funds were launched in the third quarter of this year, signaling hopes that the U.K. market has reached a bottom, but so far they have been chasing prime property only.
The U.K. commercial property market has been hit the hardest and fallen the fastest in Europe as a lack of debt financing caused declines in values and damped sales. While prices are beginning to rise again, vacancies still are high, subduing rental values.

Aviva is planning to buy prime property, with secure leases and with strong covenants, across the U.K. and will focus on retail warehousing, high-street retail and supermarkets, with lot sizes in the range of GBP10 million to GBP30 million.

Thornton said, "The risk appetite returned for all classes, but demand is only there for prime assets." He added that he saw good opportunities in property in prime locations but with shorter leases and, therefore, considered secondary, or less attractive.