Battersea project attracts global investors

London landmark coming up: Construction cranes stand above the Battersea Power Station office, retail and residential development in the Nine Elms district in London. — Bloomberg

THE 42-acre Malaysia-owned Battersea Power Station looks set to attract investors globally as the outlook for the London property market is expected to be bright over the longer term.

Development Co Ltd chief financial officer Benn Zemek said at a media conference in London last month that investors are still willing to make long-term decisions for this project given London’s strong foundation for centuries.

“What we can’t control is the macro environment, but what we can control is the micro condition. As we get closer to the completion date, you only see real estate prices outperforming on this site.

“For those people who are looking past the macro conditions, no matter what happens regarding Brexit, London will always outperform,” he was quoted in a StarBiz report in June.

“There is mixture of buyers and potential buyers from South-East Asia including Malaysia and Singapore backed by strong local demand,” he says.

The Financial Times on June 13 reported that London’s prime housing market may be showing signs of life, with prices holding firm for the first time in four years.

“London’s top-end property market is showing signs of life, raising hopes among agents and home vendors that an end could be in sight to the prolonged slump,” the article “London’s prime housing market shows signs of life” said.

Citing estate agents Savills, it reported that prices across London’s prime districts, expensive areas from Hampstead to Richmond, held firm during the second quarter of 2019 for the first time in almost four years.

Knight Frank, meanwhile, said the number of offers made on prime London homes in the quarter was the highest in more than a decade, it reports.

“The improvement was pronounced at the high end: sales of homes costing more than £5mil (RM26mil) rose 12% in the three months compared with a year earlier, according to the data group LonRes — the second consecutive quarter of growth.

“Analysts and agents said some buyers believe prices may be bottoming out, although the market remains quiet compared with its peak five years ago: transaction levels are still more than 40% below those at the height of the boom,” the Financial Times says, quoting LonRes.

The report adds that price falls appear to be moderating across the capital.

The Battersea project is a joint venture comprises Sime Darby Property Bhd and SP Setia Bhd, each with a 40% stake, with the Employees Provident Fund holding the remaining 20%.

In the last 12 months, the Battersea project residential sales amounted to £120mil (RM634mil) with a combined gross development value for eight phases of £9bil (RM46bil).

Phase one, known as Circus West Village, is already home to about 1,000 people and 20 food and beverage outlets, with over 95% leased for commercial space and upbeat retail performance.

For phase one, the majority of buyers are from Malaysia and Singapore, with the remainder being local buyers.

London-based daily, The Evening Standard also reported earlier this month that housing market is showing signs of “bottoming out.”

The report said average asking prices across the capital levelled out from June to July, falling by a mere 0.2% to £617,941 (RM3.18bil), compared to an average dip of 0.6% in the same period for the past five years.

“In January this year, homes were taking an average of 89 days to sell - the slowest time period recorded in the past 12 months. The July figures show this has now returned to the same pace as a year ago, with properties shifting within 67 days on average.”

Brexit impact

The United Kingdom is expected to leave the European Union by Oct 31 after an extended deadline from the original March 29.

According to an article earlier this week by UK-based real estate portal, new Prime Minister Boris Johnson will be positive for the country’s property market, especially if he delivers Brexit on time and reforms stamp duty.

Quoting a local industry expert, the portal reported that Johnson “will inject more enthusiasm into the sector”.

“Brexit has continued to be something of a grey cloud that has loomed over the top end of the market for nigh on three years now and continues to be the driving force behind its instability, particularly in prime central London.

“Promises from Johnson around the relief of onerous taxes is a potentially positive move for the market but this all hinges on whether or not the new Prime Minister can hold his position and prevail against the opposition in the event of a general election,” it said, quoting Carter Jonas residential head Lisa Simon.

She said Johnson’s intentions to generate more movement in the top end should clear some of the blockages further down the chain.

Meanwhile, the Evening Standard reported in June that the London property market is finally emerging from a three-year “Brexit coma,” as impatient buyers decide they have put their decisions on hold long enough.

“The biggest rise in demand has come in prime central London areas such as Chelsea, Westminster, Mayfair and Knightsbridge, where there has been a 32% increase in the number of buyers registering,” it says.

The Battersea project is about 20 minutes walk from Chelsea, which offers among the most-sought-after real estate in London is expected to receive 40 million visitors per year.

Investment destination

According to Knight Frank’s City Wealth Index, which details ideal investment destinations for potential investors, London has “shrugged off concerns” regarding Brexit to retake the top spot from New York, with the Big Apple slipping to second place overall.

“Investment was the only category in which New York managed to outperform the UK capital,” it says.In terms of ultra high net worth individuals (those with net assets of over US$30mil or RM123mil), Knight Frank says London has the largest population with 4,944, an increase of 582 over the last five years, the most of any city.

Separately, Knight Frank highlighted that an increasing number of global investors are looking to the UK to lock in stability with long-leased assets.

“As investment horizons lengthen and investors seek ways to diversify their long-term income streams, some (both private and institutional) have taken defensive positions by investing in blue-chip tenanted long-leased real estate assets.

“The benefits of long-leased assets are that they traditionally have index- linked, upwards-only rental reviews, often for 20 years or longer. This provides investors with sustainable and predictable income growth during a period where significant further yield compression is looking less likely.”

The property consultancy adds that opportunities exist in non-core office and industrial markets, including those assets with lease covenants that are robust, albeit perhaps not quite strong enough for the stringent institutional investor.

“Equally, less traditional real estate asset classes such as service stations, healthcare facilities or hotels can provide an attractive income return for private investors and a strong lease covenant that might not otherwise be attainable with an office, retail or logistics asset.”

In its analysis of purchases in prime central London, Knight Frank reveals that there have been different patterns emerging between the generations in terms of location and spend.

“When it comes to purchasing prime property, age is more than just a number. Millennials spent a combined £3.47bil (RM17.84bil) buying a piece of prime central London in 2018.

“Generation X, a smaller cohort, spent £3.5bil (RM18bil) with Baby Boomers spending more than double that – £8.58bil (RM44bil). Baby Boomer purchasers are more aligned to market performance in relation to volumes of sales – that is, as the market rises, so does their propensity to buy. However, it may also be inferred that they are a driving force in market performance.”

Knight Frank says the Generation X group of individuals is the least responsive to changes in the marketplace in regards to volume of sales.

“However, the average spend of both Baby Boomers and Generation X-ers remains impervious to market movements.

“One potential explanation is that budgets remain stable despite market conditions, and so when the market falls purchasers are able to acquire properties that would previously have been out of reach.”

Retail appeal

Battersea’s phase two, which is the actual site of the Battersea power station and is considered as the heart of 42-acre regeneration project located south of Thames, will be housing around 5,000 Apple employees with both retail and residential space completed in 2021.

Phase two comprises retail and offices as well as 253 residential units, of which 90% have been sold and is expected to be ready for handover in 2021.

According to the UK-based

Retail Gazette (RZ), which cited Savills, London continues to appeal to the expansion plans of international retailers, with the significant number of debut store openings in 2018 slated to continue this year.

“According to real estate adviser Savills, 33 international retailers opened debut individual stores in London last year, an increase of 27% on 2017.

“Savills added that this growth was slated to continue throughout 2019 despite the UK’s tough retail climate, with three new international entrants having opened permanent stores in the first quarter in the capital, and a further 11 already in the committed pipeline,” it says in its article dated April 18.

While European retailers made up the majority of international brands entering London last year, accounting for a 63.6% share of openings, RZ says Asia-Pacific retailers increased their share the most, representing a 15.2% share of new entrants in 2018.

“In addition, Savills’ research indicated that the number of store openings from Asia Pacific retailers increased by a whopping 400% in 2018 compared with the year before, with debut stores including Chinese retailer Urban Revivo at Westfield London and South Korea’s Gentle Monster opening on Argyll Street in Soho.”

The UK publication quoted Savills London head Anthony Selwyn as saying that London has always been seen as a vital gateway for international retailer expansion.

“With a number of exciting global retail brands having already committed to the capital this year, 2019 looks promising for international entrants into the London retail market,” he says.

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