Reinsurer Swiss Re gets out of a pickle
Swiss Re recently sold its landmark “Gherkin” building in central London for £600 million sterling, about $1.18 billion, the highest price ever paid for a single building in the United Kingdom.
The 41-story, 500,000 sq. ft. building, officially known as 31 St. Mary's Axe, was sold to two investors, IVG Immobilien AG, a German real estate fund, and Evans Randall, a British investment bank.
The sale comes on the heels of a 23% spike in rents in 2006 in The City, London's traditional financial center, and 33.4% in the West End. Class-A rents in The City now run about £49.25 per sq. ft., or $96.53. Meanwhile, Class-A rents in the West End are an eye-popping £81.75, or $160.23.
Opinion is divided about whether the purchase is a better deal for the buyers or sellers. “Some people are saying it's kind of a mad time to invest in The City, but others are saying it probably underlines the fact that there's still some rental growth there,” says Sue Foxley, a research analyst at Jones Lang LaSalle in London.
Other trophy buildings are now reportedly on the block as well in London, including the HSBC Tower in Canary Wharf, and the 34-story Citypoint building on Ropemaker Street. Most of the interest is coming from investors located outside the U.K., particularly Russia and the Middle East, according to Foxley.
The Turks may be having a hard time getting into the European Union, but there is no shortage of European retail developers who want to join their club.
Shopping center developers from Germany, the U.K. and Spain, in particular, reportedly like what they see in Istanbul: a large and youthful market whose consumers are backed by an economy growing at 4% to 6% annually, with yields for Class-A space running at about 9.5%, and shopping centers at 7.25%, according to a report by Cushman & Wakefield. Dubai and Kuwaiti investors are also reportedly looking hard at the market.
Investors are drawn to the demographics, which are much younger than is typical for Europe, and to its rising disposable income, says Michael Haddock, director of Europe, Middle East, and Africa research for CB Richard Ellis in London.
Those favorable market characteristics have been in place for some time. The catalyst is that the 100% to 150% annual inflation under which the country has suffered for years now seems to be under control, according to Haddock.
Rents in the central business district of Istanbul, a city of 12 million residents, now run $133.83 per sq. ft. per year and shopping centers at $100.37, according to Cushman & Wakefield first-quarter 2007 figures.
Deals have been limited due to a lack of supply, but St. Martins Property Group was a lucky winner. The London investment group recently closed on the Cevahir Shopping Centre, a 2 million sq. ft. shopping center reputed to be the largest in Europe, for about $750 million. The center's amenities include an indoor roller coaster and the world's largest clock.
No place like home
Foreign real estate investors ranked their favorite markets for capital appreciation in a recent survey. Their five favorites, in reverse order of approval: Russia (8.2%), Germany (9.8%), China (14.8%) and India (18%). Topping the charts was the United States, the No. 1 choice of 23% of respondents.
Authors of the annual survey by the Association of Foreign Investors in Real Estate (AFIRE), a Washington, D.C. trade group of roughly 150 non-American real estate investors, noted the strong showing of India on this year's poll. In recent years, China and Japan have been the highest-ranked Asian markets.
Among eastern European countries, the Czech Republic and Poland ranked highest. Hungary slipped in their regard, not surprisingly in view of its recent economic troubles, but Romania gained.
U.S. cities also did well in the survey. Investors ranked the top five cities for real estate investment as London (48%), New York, (43%), Paris (25%), Washington, D.C. (24%), and Tokyo (23%). It was London's second year in a row in the top spot, but New York's first as number two. In the 2005 survey, D.C. ranked second, but fell to fourth this year.
AFIRE members collectively own $600 billion in real estate globally, $185 billion of it in the U.S. Although 90% of their portfolios are in the U.S., U.K., and Western Europe, they seem to be increasingly interested in markets further afield.
Bennett Voyles is a veteran commercial real estate reporter and National Real Estate Investor's Paris correspondent. For questions or comments, e-mail [email protected].