Brexit is a gift for savvy buyers, says M&G boss

In one of the biggest transactions the London property market has seen this year, M&G Prudential has spent £875m to buy the site for 40 Leadenhall, a planned two-tower development also known as “Gotham City”. The deal for the project in the City of London marks the investor’s bullish approach to Brexit uncertainty, with global head of M&G Real Estate Tony Brown stating that the current situation has provided a window of opportunity for savvy buyers. The project was sold by Nuveen Real Estate, which will continue as development manager. See news story: M&G backs ‘Gotham City’ with £875m In an interview with EG following the announcement, Brown said the deal is “an example of a UK domestic investor who is taking advantage of pricing dislocation in the market […] because of Brexit”. Brexit opportunities M&G’s deal signals a vote of confidence in the London market, which has seen interest from overseas investors dwindle amid Brexit uncertainty. Indeed, it was this uncertainty that saw Nuveen put the brakes on its plans for 40 Leadenhall in 2016, following the EU referendum. By the end of 2017, a CC Land-led consortium was in talks to buy a majority stake in the development and get the scheme off the ground, but this deal subsequently fell apart. What makes the scheme viable for M&G Prudential now, in a market that is still bogged down with the same Brexit concerns? Brown says that in an environment where there is less demand from investors, M&G Prudential saw an opportunity to acquire the site “at a price that we think is relatively attractive over the long run”. He says that under normal circumstances, there would be a lot more interest in opportunities like 40 Leadenhall. But because of the political situation, “overseas capital is putting a ‘wait and see’ sticker on the UK and stepping to the side”. “Because there is so much risk aversion from investors at the moment, I think we’re in a good place to price risk and we are able to take advantage of that,” he adds. Market unleashed Although Brown says London is better value than other major markets such as Paris, Tokyo and New York, he believes investors will continue to be risk averse amid the UK’s current market conditions. Office supply will remain weak while investment interest wanes, he adds, but demand will remain high over the next few years. This offers an opportunity to present the 905,000 sq ft of space at 40 Leadenhall as one of the most attractive office developments when completed, he reasons. “Supply of office is very likely going to be pretty weak over the next three to four years because no one is taking risk,” he says. “We think this development will be well timed as it will be coming out of the ground at a time when no one else is doing this. If you’re an occupier that wants good quality accommodation, your choice is going to be quite limited in terms of the space you can take.” In general, Brown predicts that transaction volumes will remain “significantly down” for the rest of the year, “as long as there is uncertainty around Brexit”. However, he says once Brexit has been resolved, the UK should see investment demand rise in line with that in other countries. “If you take away the Brexit conundrum, there’s no reason why investment demand shouldn’t be as good as any other country. In fact, once the Brexit situation has some sort of clarity, we might see quite a strong rebound in terms of investment into the UK because at that point, on a pricing basis, the UK will look relatively attractive.” He adds: “These other countries have had price increases over the last couple of years, whereas in the UK prices have moderated, so the relative value of the UK will suddenly look pretty interesting to a lot of investors.” London in particular will receive the brunt of this renewed interest, Brown predicts. If correct, the purchase of Gotham City now could look like an even shrewder move. To send feedback, e-mail lucy.alderson@egi.co.uk or tweet @LucyAJourno or @estatesgazette