GVA Research - Who owns Mayfair and St James's

Who owns Mayfair and St James’s?

Research

Spring 2015

08449 02 03 04gva.co.uk

Executive Summary• Over the last decade there has been £17.7 billion

of investment transacted across the core West End markets. Activity has been driven by substantial overseas investment, totalling £11.8 billion between 2005 and 2014, 67% of total investment in the area. This trend has been even more pronounced in the last two years, making up 82% of all investment during 2013 and 2014.

• This activity over the last ten years means that overseas ownership of freeholds totals 4.2 million sq ft, or 33% of the 12.7 million sq ft over 20,000 sq ft. This increases to 4.6 million sq ft of buildings when taking into account overseas owner occupiers.

• The top five landlords are The Crown Estate, Grosvenor, Berkeley Square Estate, Sateria Investments and The Pollen Estate who, together are in possession of 57% of the freehold market.

• The majority of freehold ownership is still under the control of the landed estates who own 120 of the 251 buildings. These 120 buildings make up 6.1 million sq ft, and 48% of the total core stock and are deemed to be ‘locked away’ and unlikely to be sold.

• However, it is no longer only landed estates who are holding buildings indefinitely. We believe that of the 251 commercial properties over 20,000 sq ft counted in our analysis, 160 (71% of stock) will not see a sale of the freehold in the foreseeable future, and are destined to be locked away as assets. This leaves just 91 potentially tradable buildings, or a meagre 3.7 million sq ft of potential investment supply.

Over the last decade there has been £17.7 billion transacted across the core West End markets of Mayfair and St James’s. More recently, 2013 saw record investment with £3.4 billion of investment during the year. Whilst 2014 saw substantial activity and measured the second highest investment volume in the last ten years, we believe that the market was constrained by the lack of available investment supply. This is borne out by volumes being 40% down on 2013 and in line with 2012 figures. In a central London context, 2013 was also a record year with £18.7 billion transacted, with 2014 seeing a 10% reduction on these levels despite being 26% up on the 10 year average.

Investment activity during the past decade across central London has been driven by substantial overseas investment. This is a trend which has been seen in the core West End markets as much as anywhere else. Across Mayfair and St James’s, overseas investment totalled £11.8 billion between 2005 and 2014, 67% of total investment in the area. This trend has been even more pronounced in the last two years, making up 82% of all investment during 2013 and 2014. 9 out of the 10 largest deals of 2014 were overseas investments including Norges’ investment in The Pollen Estate and PonteGadea’s acquisition of 6 St James’s Square, on which GVA advised.

With overseas investors dominating, it is no surprise that other buyers have struggled to compete, often being priced out of investment opportunities. 2006 was the exceptional year, when institutional investors and UK property companies drove the market in what was a relatively quiet year, making up 45% and 32% respectively of the £1.4 billion transacted.

UK property companies have been the second largest buyer in the period since 2005, accounting for £2.5 billion of value, just 14% of the market, with institutional investors making up a lowly 10% of investment.

Who’s selling?Overseas investors were also the largest vendor by value, responsible for selling £5.9 billion worth of the transacted stock since 2005, equating to 33% of the value of the market, although it is worth pointing out that in many cases they were selling to other overseas investors.

Institutional investors were the second largest source of sales, selling £4.9 billion of assets, with UK property companies selling £4.2 billion worth of stock. These vendors accounted for 28% and 24% of the market respectively. During 2014, institutional investors were the most active vendors of stock, selling £674 million and 32% of the total for the year. Otherwise, dis-investment was widely shared. Private investors and overseas investors made up 19% each of the sales for 2014, with owner occupiers and UK property companies making up c.15% each.

Who’s buying?We believe that a profound shift is occurring in the core West End markets of Mayfair and St James’s. We have analysed the ownership of every office and retail property in the core markets of Mayfair and St James’s in excess of 20,000 sq ft, a total of 12.7 million sq ft, to provide a detailed picture of the areas. Our report

sets this against ownership structures, and the external factors that are affecting the market.

In a market traditionally dominated by landed estates, more recently we have seen substantial activity on the part of overseas purchasers, and the dawn of a new type of investor who sees property investment in the core West End as a ‘safe haven’ for their capital. The rationale of these investors is to

to hold onto their investment assets for generations to come, behaving in many ways like a traditional landed estate. These investors are likely to ‘lock away’ their assets, thereby diminishing potential commercial investment supply in these core markets.

This is putting a downward pressure on the availability of investment stock. This report will look at the ownership structure of the commercial property stock in Mayfair and St James’s, the prevalence of overseas investment, and what this means for the future. Justin James, Senior Director, West End Investment [email protected] | 020 7911 2678

Overseas investment

Overseas institutional 4%

Landed estate 48%

Unknown 1%

UK prop co 6%

UK Institutional 5%

Overseas owner occupier 4%

Overseas prop co 5%

Overseas private 23%

2005 2006 20082007 2009 2010 2011

£ m

illio

n

2012 2013 2014

2005 2006 20082007 2009 2010 2011 2012 2013 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

70%

100%

Domestic investment

UK owner occupier 3%


Landed estate 16%

Unknown 1%UK private 1%

UK prop co 11%

UK Institutional 12%


Overseas prop co 12%



Rest of Europe 12%

UK (incl. Landed estates) 63%

Other 3%

Far East 3%

Middle East 15%

North America 4%

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Mayfair and St James’s investment 2005-2014 (£ million)

Source: GVA, PropertyDataOverseas investment


Landed estate 48%

Unknown 1%

UK prop co 6%

UK Institutional 5%


Overseas prop co 5%


2005 2006 20082007 2009 2010 2011

£ m

illio

n

2012 2013 2014

2005 2006 20082007 2009 2010 2011 2012 2013 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

70%

100%

Domestic investment



Landed estate 16%


UK prop co 11%






Rest of Europe 12%


Other 3%

Far East 3%

Middle East 15%

North America 4%

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Mayfair and St James’s investment by purchaser type 2005-2014 (%)

Source: GVA, PropertyData

2 I gva.co.uk/research

We have identified 251 commercial properties over 20,000 sq ft across the core West End markets. Of these, 72 properties have a ‘controlling’ long leasehold interest and our analysis has assumed that ownership in these cases rests with the long leaseholder.

Who owns…the freeholds? The majority of freehold ownership is still under the control of the landed estates who own 120 of the 251 buildings. These 120 buildings make up 6.1 million sq ft, and 48% of the total core stock.

The activity of overseas investors in the market over the last ten years means that overseas ownership totals 4.2 million sq ft, or 33% of the market. This increases to 4.7 million sq ft (37% of the market) when taking into account overseas owner occupiers. 23% is overseas private money, with overseas institutional and property companies totalling an additional 10%. UK institutional investors and UK property companies own freeholds totalling only 0.7 million sq ft each. Excluding landed estates, UK ownership totals 1.5 million sq ft, and 11% of the market. This increases to 1.9 million sq ft and 15% taking into account owner occupiers.

Due to the dominance of the landed estates 63% of the market is in theory in UK ownership. However, in reality overseas investment is likely to be greater with one example being Norges’ part ownership of the Pollen Estate. Middle Eastern investors are the largest overseas freeholders, owning 1.8 million sq ft. European ownership accounts for 1.6 million sq ft of freeholds.

The top five landlords are The Crown Estate, Grosvenor, Berkeley Square Estate, Sateria Investments and The Pollen Estate who, together are in possession of 57% of the freehold market.

The market is dominated by buildings under 50,000 sq ft, with 173 buildings in our analysis. By comparison, there are just 18 buildings over 100,000 sq ft. Of these 18 buildings, 8 are owned by landed estates, with 8 owned by overseas private investors and 2 by owner occupiers. These 18 buildings make up 24% of the total stock.

Who owns…the long leaseholds?Whilst 68% (8.7 million sq ft) of the stock is owned purely on a freehold only basis, long leaseholds are held on the remaining 72 buildings, totalling 4 million sq ft of the remaining stock. Overseas private investors are the largest investor type, owning 1.1 million sq ft on a long leasehold interest. Institutional investors own 0.9 million sq ft, with overseas property companies owning 0.8 million sq ft.

Who is currently in control?We have also taken into consideration leaseholds to assess who controls a particular building. On this basis, the ownership picture looks very different, with overseas investors owning 6.9 million sq ft and 55% of the market. Private overseas investors have control of the largest share of the market, owning 4.1 million sq ft and 32% of stock. Landed estates’ share of the area reduces from 48% of freehold ownership to 16%.

This highlights how much stock the landed estates have sold on a long leasehold, and paints a more accurate depiction of the current investment picture.

Taking into consideration current ownership, UK owners control 45% of Mayfair and St James’s, with other European investors owning an additional 17% of the stock, compared to 63% of freeholds. Middle Eastern investors are in control of 20% of the market.

Who owns…?

Overseas investment


Landed estate 48%

Unknown 1%

UK prop co 6%

UK Institutional 5%


Overseas prop co 5%


2005 2006 20082007 2009 2010 2011

£ m

illio

n

2012 2013 2014

2005 2006 20082007 2009 2010 2011 2012 2013 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

70%

100%

Domestic investment



Landed estate 16%


UK prop co 11%






Rest of Europe 12%


Other 3%

Far East 3%

Middle East 15%

North America 4%

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Stock by freeholder type (%)

Source: GVA

Overseas investment


Landed estate 48%

Unknown 1%

UK prop co 6%

UK Institutional 5%


Overseas prop co 5%


2005 2006 20082007 2009 2010 2011

£ m

illio

n

2012 2013 2014

2005 2006 20082007 2009 2010 2011 2012 2013 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

70%

100%

Domestic investment



Landed estate 16%


UK prop co 11%






Rest of Europe 12%


Other 3%

Far East 3%

Middle East 15%

North America 4%

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Stock by current ownership (%)

Source: GVA

Overseas investment


Landed estate 48%

Unknown 1%

UK prop co 6%

UK Institutional 5%


Overseas prop co 5%


2005 2006 20082007 2009 2010 2011

£ m

illio

n

2012 2013 2014

2005 2006 20082007 2009 2010 2011 2012 2013 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

70%

100%

Domestic investment



Landed estate 16%


UK prop co 11%






Rest of Europe 12%


Other 3%

Far East 3%

Middle East 15%

North America 4%

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Stock by freehold source of investment (%)

Source: GVA

gva.co.uk/research I 3

Who owns Mayfair and St James’s? | Spring 2015

Maxim Vane Percy Director

020 7911 2771 [email protected]

Patrick O’Keeffe Head of London Agency and Investment


Chris White Senior Director


James Fairweather Director


Magnus MacAulay Director


Charles Walker Surveyor


West End Agency

West End Management

Alex Kirk Surveyor


Anna Coupe Associate


10279

gva.co.uk 08449 02 03 04

This report has been prepared by GVA for general information purposes only. Whilst GVA endeavours to ensure that the information in this report is correct it does not warrant completeness or accuracy. You should not rely on it without seeking professional advice. GVA assumes no responsibility for errors or omissions in this publication or other documents which are referenced by or linked to this report. To the maximum extent permitted by law and without limitation GVA excludes all representations, warranties and conditions relating to this report and the use of this report. All intellectual property rights are reserved and prior written permission is required from GVA to reproduce material contained in this report. GVA is the trading name of GVA Grimley Limited © GVA 2015.

Published by GVA – 65 Gresham Street, London EC2V 7NQ©2015 Copyright GVA

Daryl Perry Principal Researcher


Central London Research

James Lineham Graduate Surveyor


Chris Strong Associate


Justin James Senior Director


West End Investment

We have assessed ownerships in excess of 20,000 sq ft in terms of the likelihood of a sale. We believe that of the 251 commercial properties counted in our analysis, 160 (64%) will not see a sale of the freehold interest in the foreseeable future, and are destined to be locked away as assets. This leaves just 91 potentially tradable buildings. At the time of writing, only two freeholds are being actively or openly marketed.

It is no longer only landed estates who are keeping buildings indefinitely. Notably, we believe that there are 26 ‘locked away’ buildings under the control of private overseas investors, which make up 2.2 million sq ft of stock, with the Berkeley Square Estate and Sateria Investments making up 63% of this holding.

The 160 ‘locked away’ buildings make up 71% and 9 million sq ft of the total stock across Mayfair and St James’s. We believe that this 9 million sq ft could be locked away for generations and will no longer make up part of the potential commercial investment supply, leaving investment supply diminished to a meagre 3.7 million sq ft. This will leave the investment market in the area increasingly reliant on sales of long leaseholds.

Given the continued appetite of overseas investors for such opportunities, this is only likely to diminish in the future. Furthermore, with the substantial demand for office to residential conversions over the recent past already having an effect on the commercial supply, the opportunities to purchase freeholds in the traditional heart of the West End will be few and far between.

What does this mean?

Any enquiries please contact:

GVA’s dedicated West End Office Agency and Investment team provides a range of property services to assist both investors and occupiers from the UK and overseas. We are renowned within the West End market for our excellent track record, providing comprehensive agency, investment and development advice.

GVA Research - Who owns Mayfair and St James's

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