March of the maple leaf: Canada buys up in Britain
The country's pension funds splash out on UK property
Friday 06 September 2013
The new Bank of England Governor Mark Carney isn't the only Canadian making waves at the moment. The march of the maple leaf is gathering pace as some of the nation's biggest pension funds splash their cash on a clutch of UK property assets in a global hunt for returns.
The shopping basket includes the home of the London Stock Exchange, snapped up for £235m earlier this year by Oxford Properties, the real estate arm of Ontario pension fund Omers. Just down the road in the heart of the City's insurance district, Oxford's cash has helped fund one of the latest additions to the London skyline, the £500m "Cheese Grater" jointly developed with British Land. It isn't entirely a London story either: the Canada Pension Plan Investment Board – which manages the pension savings of some 18 million people – spent more than £300m on a one-third stake in Birmingham's biggest shopping centre, the Bullring, in May. A host of other Canadian funds such as Brookfield, Hoops – another Ontario pension fund – and Aimco are also players.
Oxford, which has some $22bn Canadian dollars (£13.8bn) under management, has gone from owning nothing in Europe in 2008 to owning £1.5bn in assets across the UK and Europe five years later. It is looking to double that again over the next two years to £3.1bn as it aims to shift the weighting of its portfolio of Canadian to European assets from 85:15 to 60:40.
Meanwhile CPPIB has doubled the size of its London portfolio to $2.1bn Canadian dollars over the past five years and is embarking on a major £1bn overhaul of Victoria with London's biggest developer Land Securities. Last month it also established a joint venture with Hermes, which manages the BT pension fund, seeded with eight properties in the capital, which could eventually grow in size to around £800m. The new joint venture is focused on the West End where a shortage of office space is even more acute.
So why are the Canadians throwing so much financial firepower at the UK property market? Experts put it down to a combination of factors: a drive for diversification, cash to spend, and – with the pound still some 20 per cent below 2007 levels – an eye for a bargain in one of the world's premier international cities. Canada ducked the worst of the financial crisis so it has big, fully funded pension schemes which are long-term investors looking to measure returns over decades rather than a three or five-year horizon. London also has the appeal of not being in the eurozone, where prospects, while improving, are still uncertain. Figures from the property agents Knight Frank suggest the Canadian funds have spent some £1.3bn in central London alone since 2010. Its investment partner Alex Foshay said: "There has been a marked increase in London investment activity by the Canadians since around the time when prices troughed in 2009. They recognise good value and when the right deal comes up they will pounce on it."
Chris Taylor, the head of Hermes real estate, adds: "There are several dimensions to this. They're a Commonwealth country – we are pretty well aligned if you like, and in terms of legal systems and real estate regulation there is a lot in common. The Canadians did not have the full storm that the Australians did, didn't suffer in the same way. They appear to be ahead of the curve and particularly well entrenched. They are big beasts, so given the rotations we are observing out of bonds into real estate they are attracted to London – you can deploy big amounts of capital. Long-term real estate investors are looking towards global diversification. It is a hot market because there is a lot of capital chasing a small number of assets."
Oxford's senior managing director Paul Brundage first opened an office in London on his own with a secretary but now employs 23 staff. In five years time it will be more than 100. He says: "Canada is a great country but a relatively small one when you look at the amount of capital we have to invest, which is only going to grow. Five years ago we had a plan to invest half in Canada and half overseas in the US and Europe. London was the first place where we put down the flag, as it is the most liquid, transparent and investable market in the world. We like the fundamentals of the London market. A lot of capital is chasing real estate assets at the prime end of the spectrum."
Graeme Eadie, CPPIB's senior vice-president and and head of real estate invesment, says London is "one of the key global cities". He adds: "From our perspective London is a very large market that offers a range of investment opportunities. The pricing is generally quite keen for core assets but there are other opportunities which we feel can generate an attractive risk return profile."
According to the property agents CBRE, overseas investors form almost three-quarters of all commercial property transactions completed between April and June – of which buyers from the US and Canada were the most prominent, at 27 per cent, despite competition from Asia and the oil money of the Middle East. The number of mega-deals over the £100m mark also increased. This Canadian shopping spree still has further to run.
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