This Acquisitive Asia-Backed Investor Says London Real Estate Is Cheap

London’s real estate investment market is more reliant on overseas investment than almost any other in Europe. With that in mind, the view of one investor that has been a conduit for Korean investment into Europe bodes well for the post-Covid recovery of the sector. 

“London is cheap right now,” Valesco founder and Chief Executive Shiraz Jiwa told the audience of Bisnow’s London capital markets digital event this week. 

Last year, Valesco undertook the largest single-asset deal in Europe when it bought an office tower in Brussels for €1.2B (£1B), and it has said it is looking for UK deals between £100M and £1B. In the UK, it bought Cannon Bridge House in 2018 in the City for £248M and Microsoft’s UK HQ in Reading for £100M. It has €2B in assets under management and typically undertakes deals on behalf of Asian and Middle Eastern investors.  

“When we look at relative value, and we look through the lens of a pan-European approach, and that includes the UK, you look at prime yields in the office sector in the City of London, they are 100-200 basis points wider when compared to somewhere like Berlin or Paris,” Jiwa said. “Whereas the liquidity of London is stronger, the resilience of London is stronger, the infrastructure and talent is always up for debate, but on the level of real estate fundamentals, London is cheap, and we see that as a real opportunity.”

Jiwa pointed to CBRE’s EMEA investor intentions survey, released this week, that showed London was the top investment preference for investors looking to buy commercial property in Europe. He also cited research from Knight Frank that identified £46B of capital looking to invest in London offices this year.  

“Swap rates are historically low, vacancy is low, the development pipeline has fallen off a cliff and there is very little grade-A space being built as a result, so London offices are looking particularly strong,” he said. 

For lenders speaking at the event, there was a need to balance confidence in London’s long-term prospects with some of the immediate issues being created by the coronavirus pandemic in particular.  

“There is short-term nervousness and headwinds around some sectors in London, like student accommodation, where there is the potential for short-term loss of income from students not being there, or offices, where there is a feeling there is quite a lot of grey space available,” said Alexandra Lanni, CBRE Global Investors’ head of investments for EMEA Credit Strategies. “So can you overcome that initial feeling and nervousness and look beyond that to the longer-term fundamentals of the London market? We are trying to make sure we are lending to schemes that are resilient for the longer term, both from an ESG point of view, and location and real estate fundamentals. You can be in the areas that need to be stabilised, as long as you are confident about the longer-term prospects.”