UK commercial market reactivates
After two years of decline from the peak levels of 1990, overseas investors have spent GBP2.2 billion in British commercial property recently.
THE hungry British property investment market has been boosted with the imminent flotation of seven Transatlantic shopping centres.
The flotation in April of half of its property subsidiary, Capital and Counties, will create the seventh largest listed property company on the London Stock Exchange with gross assets of GBP800 million (HK$9.2 billion).
It will also create the only large quoted specialist retail property company.
The launch of Capital Shopping Centres (CSC) provides an opportunity to invest in some of Britain's highest profile out-of-town shopping centres, which include the 1.32 million sq ft Lakeside shopping complex in Thurrock, the largest in south England.
It will also include the 700,000 sq ft Harlequin shopping centre in Watford, which Transatlantic bought from Sun Alliance for GBP162 million recently.
CSC's estimated rental income from the seven centres, that total 4.5 million sq ft, was GBP28.4 million last year.
Transatlantic will be keeping a firm controlling interest in Capital Shopping Centres, retaining 75 per cent of the company's shares.
Morgan Stanley, which is co-sponsoring the flotation with Jardine Fleming, says it expects to raise GBP150 million from the ordinary share issue in April. Brokers are predicting it will be over-subscribed several times.
The decision to float comes at a time when retail investment is one of the strongest investment sectors in Britain.
After the boom in retail space over 1989-1992, there has been virtually no development of shopping centres and there will be no significant openings likely before 1997-98.
An example of a recent transaction monitored by Jones Lang Wootton has been the sale of the Harvey Shopping Centre in Harlow Portland Estates for GBP41.5 million, with an initial yield of 8.1 per cent.
Transatlantic looks set to remain involved with the retail industry.
With the GBP150 million raised by the share issue and a further GBP200 million raised by a convertible bond issue, the Capital Shopping Centres will be looking for partnerships to develop new sites.
British property agents are perceiving a growing interest from international investors in the British retail sector.
After two years of decline from the peak levels of 1990, overseas investors have spent GBP2.2 billion in British commercial property, about a third of the total investment, according to agents DTZ Debenham Thorpe.
This compares with GBP1.3 billion in the previous year and the forecasts are that 1994 will see a similar figure.
Hong Kong and China investors formed 12 per cent of the GBP2.2 billion figure, compared with 33 per cent from Germany, 16 per cent from the Middle East, a further eight per cent from other Far Easterners, 20 per cent from the rest of Europe and 11 per cent from the rest of the world.
''While Hong Kong investors are undoubtedly attracted by favourable conditions in the British economy and its property markets, it is likely that uncertainty over the future of the territory post-1997 was also a significant contributory factor in the growth of their activity,'' the DTZ report said.
The report points out that investment from China, made largely by government ministries, dried up during the second half of the year.
It sees investment as unlikely to increase significantly in the foreseeable future after a call by the Chinese Government towards the end of the year for a temporary halt on overseas investment.
Japanese investment increased in 1993 but the amount involved, GBP20 million, was insignificant compared with its peak of GBP1.6 billion spent at the top in 1990.
''US and Hong Kong investors have seen the cost of their potential purchases fall by as much as a quarter over the past 15 months, although rising property prices have somewhat eroded that benefit,'' said the report.
The significant falls in British interest rates made possible by the devaluation of the pound greatly reduced the cost of borrowing and helped make many properties deals self-financing.