Canada Pension Plan Investment Board is teaming up with U.K. real estate investor Hammerson for a second time in recent months, buying a long-term leasehold on a London office building at an interesting time in the country's real estate market.
CPPIB will own 70 per cent of the leasehold interest in 10 Gresham St., while Hammerson will take 30 per cent and manage the property. The total price is £183-million including costs of £8 million, the buyers said in a release. The seller is one of Germany's biggest money managers.
The question is whether CPPIB is catching the beginning of a rebound, or buying at the tail end of a bounce that's not going to last. The purchase comes amid mixed signals for the U.K. property market.
Cushman and Wakefield, a big real-estate broker, predicts that rents in the City of London will rise by 33 per cent in the coming three years. There are indications that some of the mothballed projects of recent years, including a 47-floor tower nicknamed the Cheese Grater and a 36-storey building known as the Walkie Talkie (you're nothing in London unless your building has a cheeky nickname), are set to be revived.
But British Land Co., a huge property investor, said Wednesday that while office occupancy is up with new tenants in London signing up at higher rents, the overall rise in value of its portfolio cooled to 1.4 per cent in the most recent quarter from a pace of around 8 per cent in each of the two preceding quarters.
The effects of government budget cuts as the new U.K. Prime Minister tries to stem spending may be at the root of the slowdown, British Land said.
Another property owned by a Canadian pension plan has also been a hot topic in London of late. OMERS, the retirement plan of Ontario's municipal employees, owns 50 per cent of the Watermark Place office building, which had a rough debut.
Watermark Place was completed just as banks across London were shedding jobs, leaving a gaping hole in the office market.
The project found a tenant in Nomura, which signed up for a 20 year lease that comes with the first 50 months rent free.
UBS, which owns the other 50 per cent of Watermark, had been looking to sell its stake for about £200-million but reportedly has changed its mind.
It had instructed Knight Frank and Tudor Toone to sell the stake in February for around £200-million, according to Propertyweek.com. The report said that an improved market for rentals was part of the reason.
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