It Is The Most Expensive Piece Of Land In British History. Will Qatari Diar Make Money On Chelsea Barracks?

Ten years ago this June, Qatari Diar withdrew its plans to build more than 500 luxury flats at Chelsea Barracks, the 13-acre former army garrison next to the site of the famous Chelsea Flower Show. That left the group with a £1B hole in the ground and no certainty over what to do with it.

This week, the company broke ground on the fourth of six phases at Chelsea Barracks. There can be few schemes anywhere in the world that have seen so many ups and downs.

Will the scheme make a profit? Bisnow can reveal sales values that indicate the scheme’s finances look a lot better than they did in 2009.

Qatari Diar remains resolute — Richard Oakes of the normally silent sovereign wealth fund told Bisnow that as a long-term investor, it is comfortable riding out the cycles with a scheme it hopes will become part of the fabric of London.

The world has changed immeasurably from that point in April 2007 when Qatari Diar paid a record price for a piece of British land, £959M — £75M an acre — far more than other bidders like Hines were rumoured to have offered. When it stalled the project in 2009, the financial crisis meant residential values had fallen off a cliff, leaving the development arm of the Qatari sovereign wealth fund with little idea how financially viable its plans were.

It did not get much easier. In 2010 Prince Charles criticised the firm’s plans for the site. There was a public High Court battle with Qatari Diar’s former development partner, Christian Candy’s CPC Group, over breach of contract. And the site lay dormant until 2014, when Westminster Council granted a revised planning consent and Qatari Diar committed to building there.

The twists and turns didn’t stop there: the world was a far more stable place in 2014. Since that point, the UK government increased the tax burden on luxury homes, which contributed to falling high-end London residential prices. Construction costs have risen in the past three years. And Brexit has created an added layer of uncertainty around appetite from buyers for London prime residential.

In September the first residents move into the first phase of a revised Chelsea Barracks, which will comprise 67 apartments and three penthouses across three blocks. Phase 2, also under construction, will have 13 townhouses, and Phase 3 will have one mews house and a renovation of the former barracks chapel. The revision to the scheme undertaken in 2013 will eventually see around 375 homes created, with 123 of them affordable.

Oakes, Qatari Diar's chief sales and marketing officer for Europe and the Americas, told Bisnow that around 70% of the apartments and around 20% of the townhouses had been sold. Sales values for the apartments are averaging around £4,400/SF and townhouses are averaging £3,700/SF. That puts the price of a townhouse between £37M and £58M.

These numbers highlight how, in spite of buying at the very top of the market and enduring a period of almost unprecedented political and economic uncertainty, Qatari Diar has probably not done too badly with Chelsea Barracks. When it bought the scheme in April 2007, no new-build London home had been sold at a value of more than about £2,700/SF, according to data from Knight Frank.

But the price the super rich are willing to pay for the best houses has risen dramatically since then, as their growing wealth decouples residential prices in global cities from previous ideas of value. Savills said that last year, even with new taxes and Brexit in play, the average price per square foot for homes above £5M in London was £3,375/SF.

Using public planning documents, Bisnow estimates that Chelsea Barracks has about 1M SF of residential floor space that it will be selling at full market value. If it sells at the London average of £3,375/SF then that would net it about £3.4B for the scheme, higher than the public estimates of the total value of the scheme when it commenced development in 2014. If Qatari Diar can maintain those averages of between £3,700 and £4,400/SF, it is looking at a figure closer to £4B or more. It could have packed in more homes — its planning consent gives it permission to build up to 450, but it has chosen to build fewer, higher value homes.

“When I first joined in 2014 it was a world of low taxes and international buyers coming from everywhere,” Oakes said. “The government took the decision to increase taxes, which personally I don’t have a problem with because if you want to enjoy the infrastructure of a city you have to pay for it. But we are a long-term investor, and this is a 20-year scheme. Each phase lasts five years, so we are inherently going to go through a lot of cycles, and you can’t be too focused on what is happening today.”

Oakes said the way the firm reacted to Brexit epitomised this.

“What is going to happen with Brexit changes on any given day, and there is not much you can do about it. In the wake of the vote, a lot of people dropped their prices but we held firm because we are delivering something that will take 10-20 years to complete.”

Oakes said Qatari Diar’s commitment to long-term thinking was highlighted by the fact that of the site’s 13 acres, five would be given over to green space with the creation of seven new garden squares, which would be open to the public. One will be designed by Chelsea Flower Show gold medal winner Jo Thompson.

Over the 12 years between the purchase of the site and the start of the most recent phase, what people want from luxury schemes has also changed. So while the first phase will feature a 137K SF spa, later phases will include a health centre and sports facilities, tapping into the current trend of wellness.

“Increasingly we’re seeing wellness as something that is important to people: if you are ill you can’t really do anything in life,” Oakes said.

A higher than expected number of families have bought homes at the scheme, leading the developer to include a creche, he said.

For almost seven years, Chelsea Barracks was something of a byword for a top of the market development deal gone wrong. There is a long way still to go, but as the first residents actually get ready to move in, that is starting to change.