20th November 2018
During Summer this year the People’s Republic of China (PRoC) announced the purchase of the historic, walled 5.5 acre estate Royal Mint Court for its new Embassy.
The complex, opposite the Tower of London World Heritage site, housed the Royal Mint from 1810. A sum of £255m is reported to have been paid for the 480,000 sqft of existing buildings; originally developed in the late 1980’s by City Merchant Developers in partnership with the Crown Estate Commissioners. The estate comprising 5 buildings, two of which are listed, is encircled by a listed wall with underpasses to the St Katharine Docks office, retail, leisure and harbour complex.
The estate witnessed a series of ownership changes through the 1990s and noughties until private clients of Delancey acquired the freehold interest in Royal Mint Court from the Crown Estate in 2010 in an off market transaction.
As leases in the complex buildings began expiring in 2013, a JV was established between Delancey and the LRC Group. The JV went on to secure planning permission for a campus redevelopment of the site to include 600,000 sqft of office or hotel accommodation, new retail and leisure space, as well as 1.8 acres of landscaped public realm. Preliminary marketing was targeted towards securing commercial pre-lets before the unexpected announcement of the sale to PRoC.
The expectation is that the PRoC will redevelop and refurbish within the constraints of the Listing Orders to encompass an Embassy, a hotel, and additional office and ancillary space.
In recent years this southern swathe area of EC3 has witnessed the development of 4,500 new apartments and 2,500 new hotel rooms. A less heralded but nonetheless significant trend has been the influx of investment from Chinese and other Far Eastern investors. The relocation of the Embassy from Portland Place in Marylebone is further evidence of the focus on EC3. In our analysis below we look at recent investment activity by Chinese and Hong Kong purchasers and assess the likelihood of further capital inflows from Far Eastern sources.
An early foray was seen in 2013 within the epicentre of the “Lloyds Triangle” when China’s Ping An Life Insurance Company acquired the Lloyds Building at 1 Lime Street (#1 on the below map). Planning and design is underway on TH Real Estate’s 40 Leadenhall, nicknamed Gotham City, (#2), after it secured majority funding by a consortium of Hong Kong investors in 2017. Of those investors, CC Land became a key shareholder in 2017 following its ground breaking £1.15bn purchase of The Leadenhall Building (#3), dubbed the “Cheesegrater” home to Insurance majors, Aon and Amlin. Additionally, Hong Kong based Lai Sun Developments’ newly approved skyscraper at 100-106 Leadenhall Street, which is to be developed in partnership with London & Oriental, will boast an impressive 1.2m sqft of office and retail space. Construction is set to commence in 2023 on the north side of Leadenhall Street (#4).
Close to Fenchurch Street Station Friary Court, in Crutched Friars, let to solicitors Holman Fenwick LLP, was acquired in 2015 by Beijing Developments (#5). This was followed in 2017 by the record-breaking acquisition of the ‘Walkie Talkie’ (#6) building on Fenchurch Street, by Infinitus Property Investments (HK) for £1.28bn.
More recently, the fully let freehold investment of Corn Exchange (#7), in Mark Lane, was acquired by Hong Kong’s Hao Tian Group, which was a direct HK-China trade disposed of by Reignwood Investments, the Thai-Chinese group based in Beijing, for a sum of £127.7m. However, Reignwood Investments still remain involved nearby at Ten Trinity Square (#8), acquired in 2016 in partnership with Four Seasons and Chateau Latour.
To the west of Ten Trinity is Tower Place, EC3 (#9), Ping An’s other long held interest, let to giant US insurer Marsh. Acquired for £327m in 2014, the Foster & Partners’ designed building overlooks the Tower of London. 41 Tower Hill (#10), was acquired in 2016 by China’s Minsheng Bank is slated for redevelopment in the near future.
Our perception is that the one of the attractions of the south EC3 submarket comes in the form of the lower rents historically paid by occupiers resulting in higher rental growth potential, higher yields and lower capital values. Another significant factor has been the cluster of Tower buildings (unfettered by planning restrictions) which has resulted in the creation of Trophy assets with worldwide “coffee table” investor appeal.
For many years EC3 laboured under a “Cinderella” inferiority complex, less understood and less known and less trawled that its “Big Brother” postcodes (EC2 and EC4) despite enjoying office stock levels of over 19.5 million sq ft. With the existing Towers and further major projects at Gotham City and 100 Leadenhall planned for the medium term, any past stigma associated with the EC3 postcode is likely to be truly extinguished.
Tower Hill enjoys direct connectivity to London City Airport and to London’s Excel centre and with the 2017 opening of the Four Seasons just across from citizenM’s lifestyle hotel option, there are discerning leisure and hospitality options set alongside the key footfall generator in the Tower of London itself.
Furthermore, it is a reasonable expectation that Eastern firms associated with PRoC will follow in their Embassy’s footsteps and venture further into EC3 and Tower Hill. This may result in an upswing in occupational activity, something that will benefit investors through demand-side pressures on availability, as well as a likely de-risking of investor yields for the better assets in this submarket.
The increased footfall of Chinese businesses and nationals to the Embassy will in our view bring further focus on this locality and in all likelihood future capital inflows and an influx of new occupiers from the world’s second largest economy.
For further discussion, please contact David Alcock or Oliver Kirke.
