A mega-deal is in the offing on the London real estate market: an Asian investor is offering 1.15 billion pounds (about 1.3 billion euros) to acquire the Leadenhall Building, also known as the Cheesegrater because of its unusual architecture. This is just one example of many – after all, international investors have been buying up one skyscraper after another in major European cities for years.
This is part of a wider trend: international investors are altering their investment strategies to increase their real estate allocations significantly. South Korean investors, for instance, target a real estate allocation of 15% of their overall portfolio, yet they currently hold just 8.9%. This makes office towers in top locations that produce secure long-term returns especially interesting for them, and Asian investors generally are resolutely snapping up opportunities for larger-scale investments of 80 million euros and up.
The fact that purchase prices have risen substantially (at least as far as euros and pounds are concerned) is apparently doing little to dampen their interest, because the major Asian investors benefit from the continuing strength of the US dollar. Since Asian currencies are frequently tied to the world's reserve currency, prime European properties, such as the Leadenhall Building, appear relatively inexpensive. Over the past three years, the British pound has fallen by more than a quarter against the US dollar.
Euro decline attracts international investors
The Korean won has rarely been stronger than it is today, with the euro costing just over 1200 won on the currency markets. During the global financial crisis of 2008/2009, there were times when the rate was 2000 won per euro. Furthermore, euro-based real estate loans are cheaper than in the dollar zone and will probably stay that way for a while. Unlike the Federal Reserve, the European Central Bank is not even considering an interest rate change yet, although just as in the US, there has been a noticeable upsurge in consumer prices in the EU. In 2016, Asian investors took advantage of this extraordinary combination oflow interest rates and favourable exchange ratesto diversify their portfolios. After all, diversifying into different markets also means diversifying their risk.
Acting on behalf of a Korean consortium, PATRIZIA acquired the Astro Tower in Brussels from a Spanish real estate company. Standing 107 metres tall, the tower is one of the most distinctive landmarks of the Brussels skyline. "Thanks to our pan-European positioning and expertise, we have once again succeeded in identifying a highly attractive real estate investment for our Asian clients,” says Dr Konrad Finkenzeller, Head of Institutional Clients International at PATRIZIA.
The highest level of energy efficiency following extensive redevelopment
Built in 1976, the Astro Tower is located in the central business district of the Belgian capital, in the immediate vicinity of the European Parliament. The skyscraper boasts 36 000 square metres of office space on 33 floors, along with a five-storey underground garage with 264 parking spaces. The previous owner refurbished the building for just under 100 million euros, so that it has the highest energy classification of the passive energy standard.
“For years, the office property market in Brussels has been distinguished by outstanding stability and is therefore exceptionally attractive to institutional investors.”
Etienne Marcot, Managing Director at PATRIZIA France
Since October 2016 the entire Astro Tower has been occupied by the state employment agency Actiris, based on a 26-year indexed lease agreement, concluded without a termination option. The property is managed by the asset management team of PATRIZIA’s subsidiary in France, which is responsible for France and Belgium. "For years, the office property market in Brussels has been distinguished by outstanding stability and is therefore exceptionally attractive to institutional investors,” says Etienne Marcot, Managing Director at PATRIZIA France.
Thanks to growing interest in real estate allocations from investors worldwide, properties in major European cities that have long-term leases are highly coveted. Low interest rates and favourable exchange rates are fuelling this trend further. The demand is greatest for distinctive office towers, such as the recently refurbished Astro Tower in Brussels, which PATRIZIA acquired in 2016 on behalf of a Korean consortium.
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