China Vanke

China Vanke buys office building in London for £115 million

Mainland’s biggest home builder can expect a 4.3 per cent rental yield from its first UK commercial property

PUBLISHED : Wednesday, 07 September, 2016, 7:08pm
UPDATED : Wednesday, 07 September, 2016, 10:59pm

China Vanke, the mainland’s largest home builder, confirmed that it has stepped up its overseas investments with the purchase of an office building in Central London for £115 million(HK$1.2 billion).

Despite being embroiled in a tussle for corporate control among shareholders, Vanke has agreed to buy Ryder Court in Mayfair, Central London, a company spokesman told the South China Morning Post on Wednesday.

The deal marks the developer’s first foray into the UK’s commercial real estate market.

Vanke bought Ryder Court from UK-based Henderson Global Investors, which had acquired the property from LaSalle Investment for £82 million in October 2013. It is the first major sale by the fund after Brexit, and comes after its investors demanded an exit amid uncertainty over the country’s commercial property sector.

“The acquisition is in line with the company’s strategy of diversification,” said Liu Feifan, a property analyst with Guotai Junan Securities, adding that the 4.3 per cent rental yield of the building is comparatively high.

Buying foreign currency-denominated assets helps China’s biggest investors to diversify their portfolios
Darren Xia, head of JLL’s International Capital Group, China

This is Vanke’s second investment in the UK property market. Last October, the company spent £30 million acquiring a 20 per cent stake in a residential project under London developer Galliard Homes.

Ryder Court, which has a gross floor area of about 70,000 square feet, is close to Piccadilly Circus and Green Park station.

Vanke is among a slew of Asian property firms that are taking advantage of a post-Brexit currency window to secure UK property investments. The decline in the value of sterling has made deals cheaper for Asian firms, though there is uncertainty over whether companies may decide to relocate parts of their operations to other parts of Europe, reducing demand for UK office space.

“Despite the internal shareholders struggle, Vanke is eager to expand overseas, especially in the UK, where office buildings’ yield is stable and far exceeding other places,” said Nick Wang, associate director with the investment arm of global property consultant Savills.

The company’s executives have said previously that beyond financial gains, Vanke is accelerating its overseas expansion in a bid to learn from international peers and transform itself into a global company with operating expertise in key international markets.

Vanke is currently caught up in a high-stakes dispute over corporate control. Its rival China Evergrande Group’s recent emergence as the third largest shareholder has complicated the situation. The global ratings agencies S&P and Moody’s recently cut their credit outlooks for Vanke, saying the tension among key shareholders and the management team could ultimately weaken the company’s performance and undermine its financial discipline.

Darren Xia, head of JLL’s International Capital Group for China, said: “As Chinese investors become more experienced in cross-border deals, Chinese institutions have played a part in some of this year’s largest transactions in the world’s biggest real estate market. Buying foreign currency-denominated assets helps China’s biggest investors to diversify their portfolios.”

Additional reporting by Summer Zhen