London Landlords Are Hoisting for Sale Signs on Office Towers

(Bloomberg) -- London landlords are offloading some of their most valuable properties as demand from investors in the Asia Pacific region continues despite the Brexit vote.

Spurred by the record sale of the Cheesegrater tower, stakes in office buildings including the skyscraper known as the Walkie Talkie and 20 Canada Square in the Canary Wharf financial district are being offered for sale. Other investors including Blackstone Group LP and the real estate unit of Axa SA are seeking to sell investments that have risen in value as investors continue to seek higher yielding alternatives to stocks and bonds.

“The market is still robust for the best assets,” Stephen Down, head of central London at broker Savills Plc, said by phone. “The focus is on income” rather than taking the risk of developing a building and then having to find a tenant.

Investment in central London offices slumped to a five-year low in 2016 as few owners were willing to offer buildings for sale amid concerns the Brexit vote might dent values. Office-focused real estate investment trusts such as Land Securities Group Plc and British Land Co. should now sell more projects and use the money raised to return capital to shareholders, Hemant Kotak, an analyst at Green Street Advisors, wrote in a March 23 note titled “Sell to Stay Safe.”

‘Unprecedented' Price

C C Land Holdings, a Hong Kong-based real estate developer, will pay 1.15 billion pounds to British Land and Oxford Properties Group Inc. for the Cheesegrater, formally known as the Leadenhall Building. The price was “unprecedented” for a London tower on a square-foot basis, Morgan Stanley analyst Bart Gysens said in a March 1 note to clients.

In the past month, properties valued at more than 2 billion pounds have been offered to investors. Blackstone plans to sell its St. Katharine Docks complex adjacent to the Tower of London for about 450 million pounds, Axa is offering ICBC Standard Bank Plc's London headquarters and Brookfield Property Partners LP is offering an office building in Canary Wharf for 420 million pounds.

Morgan Stanley's real estate investing unit plans to sell its stake of almost 12 percent in the London skyscraper known as the Walkie Talkie and China Investment Corp. weighed a bid for the holding, people familiar with the plan said in February. Other investors in the building are also weighing a sale of their stakes in the property, CoStar News reported on March 15.

There's a strong chance the buyers of those properties will be Asian. Chinese and Hong Kong investors spent 2.9 billion pounds -- more than buyers from any other region -- on central London offices in 2016, broker Knight Frank said in a Feb. 1 report. They're benefiting from a weaker pound, which has lost almost 16 percent against the Hong Kong dollar since the referendum.

Strong Resilience

“There is a good group of Asia Pacific investors continuing to look for quality, well-leased buildings,” James Beckham, who as head of central London investment at broker Cushman & Wakefield Inc. advised on the sale of the Cheesegrater, said in an email. “Yields in London are providing strong resilience against some of the negative headlines surrounding Brexit.”

For some analysts, the decision by landlords to sell is a good one.

“Risks are skewed to the downside and REITs trade at discounts” to their net asset value, Kotak wrote. “Greater caution is required” among firms pushing ahead with new developments as they “carry greater risk and reduced margins.”

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Andrew Blackman