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LOREM IPSUM
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INVESTING IN LONDON
2013
BNP PARIBAS REAL ESTATE GUIDE TO
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IN ASSOCIATION WITH
ABOUT BNP PARIBAS REAL ESTATE
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BNP Paribas Real Estate is the market leader in commercial real estate services across
Europe with 662 million of gross turnover, 156 million of gross operating proft and
3,300 employees.*
CONTACTS
John Slade
UK Chief Executive Offcer
+44 (0) 20 7338 4470
john.slade@bnpparibas.com
Andrew Cruickshank
European and Middle East Investors
+44 (0) 20 7338 4434
andrew.cruickshank@bnpparibas.com
Michael Chadburn
Asian Investors
+44 (0) 20 7338 4109
michael.chadburn@bnpparibas.com
David Barry
North America Investors
+44 (0) 20 7338 4199
david.barry@bnpparibas.com
Richard Garside
Head of City Investment
+44 (0) 20 7338 4034
richard.garside@bnpparibas.com
Daniel Bayley
Head of Central London
+44 (0) 20 7338 4444
daniel.bayley@bnpparibas.com
Ben Moon
Head of Valuation
+44 (0) 20 7338 4410
ben.moon@bnpparibas.com
We manage more than

32 million sq m

in commercial real estate

across Europe
13.1 billion
of assets under management
across Europe
One of the market

leaders in Europe

in commercial Property

Development
3,900

commercial real estate

transactions completed in 2012
35m gross turnover

in consulting

Real Estate Advisory: 66%
Building Consultancy: 23%
Occupier Services: 11%
We valued around

300 million sq m
KEY FIGURES
Claire Higgins
Head of Research
+44 (0) 20 7338 4122
claire.higgins@bnpparibas.com
Paul Griffths
Head of West End Investment
+44 (0) 20 7338 4266
paul.griffths@bnpparibas.com
Nick Rock
Head of West End Leasing
+44 (0) 20 7338 4485
nick.rock@bnpparibas.com
Hugh White
Head of National Investment
+44 (0) 20 7338 4415
hugh.white@bnpparibas.com
Steve Harber
Property Management
+44 (0) 20 7484 8170
steve.harber@bnpparibas.com
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CONTENTS
Canary Wharf
INTRODUCTION
LONDON BY NUMBERS ....................................................... 4
LONDON OVERVIEW
TOP 10 REASONS TO INVEST ............................................. 6
HOW WE DID IT ..................................................................10
GUIDE TO LONDONS SUBMARKETS ..............................12
INVESTOR TOOLKIT
INVESTORS QUESTIONS ANSWERED .............................22
TAX CASE STUDY .................................................................26
FUTURE LONDON
KEY TRANSPORT CHANGES ..............................................32
LONDON SKYLINE ...............................................................33
HOT SPOTS ...........................................................................34
South Bank
London
Bridge
West End
Midtown
City
Docklands
Northern
Fringe
Bank
Holborn
Kings Cross
Bond Street
Canary Wharf
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LONDON BY NUMBERS
286.6bn
The total of Londons annual economic output
or gross value added in 2012.
75%
Three quarters of Fortune 500
companies have a London offce.
15.5m
London continues to be a vibrant tourist
destination, attracting 15.5 million
international visitors in 2012.
8.31m
Londons population has grown every
year since 1998 and stood at 8.31
million at the end of 2012. The upward
trend is expected to continue until 2031.
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Londons high profle has been further
enhanced over the last 18 months with the
whole world watching the great success
of the Olympics and Paralympics. We also
had a British player winning Wimbledon,
the 150th anniversary of the London
Underground, Boris Johnson was re-
elected as Mayor of London and we have
a new Governor of the Bank of England.
The market looks well set short to medium
term but will be susceptible to major
global events and the changing European
political landscape factors that could
affect all global cities.
In London real estate we have seen huge
infows of capital from all over the world,
helping central London investment reach
24 billion in the last 18 months (64%
overseas), values rising steadily again
in both the residential and commercial
markets and new trophy buildings further
populating the London skyline. We have
also seen new submarkets emerge as
investors look for value outside of the
traditional core submarkets with Stratford,
Farringdon, Kings Cross and the London
Bridge Quarter (South Bank) in particular
becoming popular for development and
investment as we predicted in our last
guide in 2011.
Farringdon is also attracting overseas
interest on the residential side. The
Vauxhall/Nine Elms regeneration area is a
subject of great demand, another prediction
of ours in our 2011 guide. Retail demand
continues to be higher than supply. On
Old & New Bond Street rents and values
continue to rise and new international
retailers are looking towards other high
class London retail locations such as Sloane
Street, Covent Garden, Regent Street, and
further moving into areas such as Notting
Hill and Chelsea.
For BNP Paribas Real Estate the game has
also changed with new teams of capital
markets experts in place to complement
our existing specialists, enabling us to have
better access to the best opportunities on
and off-market and access to the fnancial
expertise and products offered by our
parent company BNP Paribas.
This guide aims to help overseas investors
understand the London market and what
changes may be in store going forwards.
Our experts can advise you on entry to the
London market, asset selection and asset
management and property management
so that your property strategy and your
assets are in safe hands and rising in value.
We can also consider your debt position if
gearing is required.
Throughout this document, our experts
will guide you through the different
makeup of the London submarkets, all you
need to know about London, examples of
transactional deals we have done with
overseas investors, and of course where
the next opportunities are coming from.
We have also teamed up with some of the
best UK legal minds to bring you a clear
understanding of tax and legal terms.

John Slade is Chief Executive Offcer at
BNP Paribas Real Estate.
A CAPITAL PLACE FOR INVESTORS
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London Bridge
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LONDON OFFERS DIVERSE MARKETS WITHIN A MARKET
London is recognised as one of the largest and most dynamic cities in the world
and, as such, offers a wide range of investment opportunities. The diverse
occupier base, many of which cluster into certain submarkets (e.g. insurance
in EC3 and TMT in northern City fringe), offer investors exposure to market-
leading covenants in banking, insurance, media, technology, fashion, educational
and industrial. These occupiers require different sized buildings with different
designs and specifcation. Each industry will experience different occupational
and rental cycles, allowing an investor exposure to diverse risk profles in the
same city. The dynamism of London is being refected in the creation of new
commercial and residential areas including Kings Cross, Stratford, Southbank
and Silicon Roundabout.
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TMT TO DRIVE DEMAND
The technology, media and telecommunications sector is
commonly abbreviated to TMT. This sector encompasses a
vast array of companies from huge publishing houses like
HarperCollins, to computer software giants like Microsoft,
to niche advertising agencies and start-up tech companies.
Recent research into the TMT sector by BNP Paribas Real Estate
highlighted that 54% plan London headcount increases over
the next three years, on average increasing staff numbers by
one third. Claire Higgins, head of research at BNP Paribas Real
Estate, says: The TMT sector will need 1.2m sq ft of additional
London offce space by the end of 2014 - the equivalent of two
Shards. This is over and above the sectors natural demand
through churn of c. 1.15m sq ft per year. This sector has no single
dominant preferential London location, so the whole London
offce market could potentially gain from the sectors growth.
TOP 10 REASONS TO INVEST
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OVERSEAS INVESTMENT CONTINUES TO DOMINATE LONDONS
OFFICE MARKET
The diversity of Londons investment market has protected it from the worst
effects of the downturn. Turnover in 2012 reached close to 17bn and we
are hopeful that a similar fgure will be reached in 2013. During the frst
half of 2013, non-UK investors accounted for 78% of offces transactions by
value in central London. Overseas investors were behind 4.15bn of property
transactions in the City of London during the frst six months of 2013. Prime
West End yields are now 4% for offces and 4.5% in the City of London. Some
notable deals this year included Chinese insurer Ping Ans purchase of the
landmark London home of insurance frm Lloyds of London for 260 million
in early July and Samsung SRA Asset Management, representing a group of
South Korean institutional investors, bought 30 Crown Place, a building in the
City of London, for 142 million in April.
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CONFIDENCE IN LONDON REMAINS HIGH
The market is clearly benefting from increased confdence, which is
fuelled by an economic recovery in the UK largely focused on London.
The confdence of overseas businesses in the capital is at a high. A survey
commissioned by promotional agency London & Partners found that 90% of
senior executives from overseas companies believe that London provides
a good location for their business. In addition, a survey by Think London
reveals that 82% of senior executives from foreign direct investment
companies believe that London provides a good environment for strong,
innovative companies.
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THE TOP 10 REASONS TO INVEST IN LONDON
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LONDONS HOUSING MARKET OUTPERFORMS EXPECTATIONS
Londons residential market is outperforming the rest of the UK.
Average rents in Greater London peaked at more than 1,100 per
month in May 2013 and look set to continue increasing. In central
London, the average is closer to 2,500 per month. The rental market
in London remains strong as many would-be buyers, due to high
property prices, are forced to rent. Unsurprisingly as demand exceeds
supply London saw the highest rental growth fgures. House prices
have also remained strong. Values across London have risen by 8%
over the last 12 months, and by 14% for prime residential. The highest
achieved sales price per sq ft for apartments in the Mayfair and
St James areas have been reported at fgures of up to 5,000 per sq ft.
In Central London, international demand has remained strong with
investors looking for a safe haven asset; 70% of sales in the Mayfair
area in 2012 were to overseas buyers.
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LONDON RETAIL CONTINUES TO BE ROBUST
Londons retail property market continues to experience a period of strong growth,
driven by a combination of favourable exchange rates for tourists; good levels of
consumer expenditure in the capital and international retailers competing for space.
Retailers from the US are leading the international expansion. Following hot on the
heels of US fashion retailer Forever 21, J Crew have their fagship store on Regent
Street in the former Burberry store and are now proposing to expand with three
further units in central London. Equally, Williams Sonoma, the US Homewares giant
are opening a new fagship for their West Elm brand on Tottenham Court Road in
October 2013 and they are rumoured to be seeking further units in the West End.
Meanwhile, Chinese fashion retailer Bosideng MAN have successfully opened a
store in South Moulton Street, close to Oxford Street. Finally, the continental luxury
brands continue to fock to central London and particularly the Regent Street /
Bond Street locations, where they are a magnet to the international high net worth
clientele, many of whom have UK homes.
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SUSTAINED STRONG DEMAND FOR HOTELS FROM OVERSEAS
The London hotel market has clearly suffered no hangover from the
excitement of the Olympic Games in 2012. Demand for rooms has been
reported to have increased by over 6% year on year to June 2013, and average
room rates grew from 112.90 to 139.07. The quality and range of the hotel
offer continues to expand, with refurbishment of historic buildings as boutique
hotels being popular, and an increasing focus from Chinese operators on
fve star facilities. These are often in non-traditional locations and include
established companies such as the Dalian Wanda Group and Hong Kong and
Shanghai Hotels. The budget end of the market is also seeing an increase in
demand from operators with new entrants competing with established players
such as Premier Inn and Travelodge. Investor demand is strong with overseas
buyers dominating over the past 18 months, accounting for 70% of investment
by value. Far Eastern and European investors were the most active purchasers.
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LONDON OFFERS OVERSEAS INVESTORS AN ATTRACTIVE TAX REGIME
There is generally no UK tax on capital gains for non-UK resident investors
buying property in London, even on deals negotiated or signed in the UK. When
calculating taxable rental income, interest on a loan to a non-resident landlord
secured against the property is generally deductible (for information on our tax
clinic, see on page 28).
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TRANSPARENCY, WHATEVER THE CYCLE
The simplicity and effciency of the UK legal system and market practices
means investors are able to access accurate market information about
particular assets, as well as about the market in general. The liquidity of
the London market means that entry and exit are always possible.
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ASSET MANAGEMENT SIMPLIFIED BY LONGER LEASES
Average lease lengths in London are 7.4 years for offces and 10.4 years for
retail. In Asia, however, buildings tend to have shorter leases and are multi-let.
Overseas investors appreciate the fact that buildings are often occupied by a
sole tenant that is there for the long term, making it simpler to asset manage
a property from afar, says Andrew Cruickshank, senior director of international
investment for BNP Paribas Real Estate.
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HOW WE DID IT
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London may be one of the easiest markets to invest in globally, but new buyers need to do
their homework. We spoke to three overseas investors about their top tips for success
London is an active and transparent market, and
there always seems to be a supply of opportunities.
However, buildings that meet the requirements of
most overseas buyers attract strong interest which
means that investors not based in London should
create a set of good connections to the market in
order to secure information on deals quickly, and
ideally prior to formal marketing, so advises a
representative of a Family Offce based in Bangkok.
I would advise any would-be investors to
assemble a team of advisors prior to making
formal offers so that they have credibility and
can act quickly and decisively. Be clear in your
strategy; understand the market and the asset
then pursue the deal with intent. There is too
much competition from other overseas players
and strong UK buyers for a new investor to be
disorganised or hesitant.
At frst we found the prospect of entering such
a buoyant and diverse market slightly daunting.
However, the London market works in an organised
and transparent way and market information is
easily available. Our professional team helped us
understand the buying process and it didnt take
us too long to feel comfortable in making our frst
bid.
Our client worked hard to develop an
understanding of the market and whilst being clear
in his strategy, he was fexible enough to consider
a number of opportunities. Once the purchase was
completed he has been pleased with the relative
ease in which the building can be managed going
forward, says Andrew Cruickshank, BNPPREs
director of international investment in London.
THAI FAMILY OFFICE
JAPANESE PRIVATE CORPORATION - LONG-TERM SECURE INCOME STREAMS
This well established Japanese corporation is a new entrant to the
UK market and is seeking long term secure income streams. We
identifed a number of potential opportunities for defensive assets
which would suit their profle. This was refned down to a very
long term income deal in Kensington, London, leased for a further
84 years without a break to a UK hotel operator, Premier Inn, a
subsidiary of the leisure group Whitbread. The lease provides for
an initial infation linked rent review then open market reviews,
so offers a combination of infation hedging followed by market
rental growth. The investor was seeking diversifcation away from
other assets classes, diversifcation away from Japan and secure
long-term income with growth potential. The London market is
very competitive with many UK and overseas investors looking
for defensive assets but with potential for longer term growth.
This asset perfectly matched this requirement. One of the keys to
securing this asset was the speed of execution and the ability to
purchase with full cash funds and gear to post purchase.
22-32 West Cromwell Road, SW5
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One of our private Middle Eastern
clients says successful investment in
London is about stock selection and
patience and reacting quickly when the
right opportunity comes along. Queen
Anne buildings was its second central
London investment in three years:
Having previously acquired a freehold
offce building in London, I was aware
of the complexities of the market,
for example the large amount of
competition and lack of product.
During the 12 months prior to the
purchase, I considered two offce assets
seriously and learned about the area,
occupiers, tenant demand and made a
judgement about potential for medium
term capital growth but with a particular
focus on the current income yield.
This building offered a good return
in comparison to other West End
buildings, although the offces were
slightly over rented and a number
of tenants had break options, so the
reward on the yield refected the risks.
The critical part of this investment
was to mitigate the risks to the income
and this has been done by engaging a
good asset manager to strengthen the
income stream and standardise the
lease profles.
Another reason for investing was
because London has an attractive tax
regime that is more favourable to
overseas investors than other places.
MIDDLE EASTERN INVESTOR -
QUEEN ANNE BUILDINGS
2 Queen Annes Gate Building, SW1
GUIDE TO LONDONS SUBMARKETS
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THE CITY
THE CITY: FOR BIG PLAYERS
If you have large amounts of capital to deploy,
this area should be top of your list. While the
City offers a range of lot sizes, there are many
properties of 200,000 sq ft and over. Recent
transactions of this scale include the 472m
sale of the 575,000 sq ft Ropemaker Place, EC2,
and the 235m sale of the 246,000 sq ft 10
Paternoster Square, EC4.
With average offce lease lengths of between fve
and 15 years, compared to between fve and 10
years for offces in the West End, the area is ideal
for those looking for long-term income.
This market can be volatile, however. Good scope
for development in the City leads to fuctuating
rental cycles. In December 2007, prime rents were
65.00/sq ft. Two years later, they were 43.50/
sq ft. The good news is rents have been steadily
growing since then, standing at 55.00/sq ft today
and forecast to rise to 62.50. Current supply is
being absorbed, decreasing from 11.71m sq ft in
2009 to 7.86m sq ft in the second quarter of 2011
to 7.6m sq ft in mid 2013.
The provision of retail and leisure amenities has
grown substantially in the past few years and this
is principally for the Citys employees rather than
tourists. There is also growing interest in mixed-
use developments, of which Land Securities
300,000 sq ft One New Change, EC4, is a prime
example.
There has been 2.8bn of transactions in the City
during the frst half of 2013 and whilst 2013 may
struggle to reach the 6.89bn transacted in 2012,
the market remains robust.
CITY POST CODES: EC1 professional/
fnancial/media; EC2 fnancial district;
EC3 insurance district; EC4 professional

MOST FAMOUS FOR: The City of London
is a world leading fnancial centre. A
total of 300,000 are employed in the
fnancial services sector and more
funds are invested in the submarket
than in the next top 10 European cities
combined according to the London
Development Agency. In its latest
London Financial Sector Survey, BNP
Paribas Real Estate reported that the
City remains the world leading fnancial
centre, with 82% of respondents
citing the capital as the global leader,
compared with just 16% who specifed
New York
LANDMARK BUILDINGS: The Gherkin,
Tower 42, Lloyds of London, the Heron
Tower and St Pauls Cathedral.
PRIME RENTS (/SQ FT)
& YIELDS
OFFICE
Prime yields (%) 4.5
Secondary yields (%) 5-6
Prime rents 54.50
Overseas Investment (m)* 7036
Overseas Market Share(%) 79
PRIME RENT
FORECAST (/SQ FT)
Q4 2013 57.50
Q4 2014 60.00
Q4 2015 62.50
2.8BN
TRANSACTED DURING
H1 2013
62.50
PER SQ FT RENT
FORECAST IN 2015
4.5%
PRIME OFFICE YIELDS
8.7%
VACANCY RATE
Source: BNP Paribas Real Estate
* Covers the last 18 months
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ORIENTATION
EC1
E1
EC3
EC4
St Pauls
EC2
Tower 42
Bank
EC1
E1
EC3
EC4
St Pauls
EC2
Bank
The Gherkin
Heron Tower
The Silicon
Roundabout
GUIDE TO LONDONS SUBMARKETS
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Whatever your investment strategy, London has something to ofer, as our overview over the
following six pages shows
OCCUPIERS
Finance is by far the most important sector to
the City, accounting for 50% of the occupier base.
However, it is also dominated by professional
services frms such as lawyers and accountants
(30%) and insurers (10%).
Take-up in the City soared to 1.8m sq ft in Q2
2013, an increase of 76% on Q1 2013. This is the
strongest quarter since Q4 2010 when take-up
reached 1.87m sq ft. Overall take-up in the frst
half of 2013 rose 30% to 2.8m sq ft compared
to H1 2012, with full year take-up expected to
exceed 2012s level. There were eight deals over
50,000 sq ft, three of which exceeding 100,000
sq ft were pre-lets (either under construction or
off-plan), demonstrating the growing confdence
in the City occupier market. These include
Amazon at 60 London, EC1 (213,000 sq ft), Bird
& Bird at 12-14 New Fetter Lane, EC4 (136,200
sq ft), and Amlin at The Leadenhall Building,
EC3 (111,800 sq ft).
Prime rents in the City core continued to
stabilise at 54.50/sq ft in Q2. In the City fringe
rents have increased by 11% to 50.00/sq ft,
during the second quarter, while prime rental
values in tower buildings remained unchanged at
65.00/sq ft.
DEVELOPMENT
The volume of space under construction now
totals 4.8m sq ft across the City. 2013 is set
to see approximately 1m sq ft of speculative
development complete. A total of 3.5m sq ft is
scheduled for delivery in 2014, 53% of which has
already been pre-let. Signifcant schemes due to
complete are 20 Fenchurch Street (675,000 sq ft),
The Leadenhall Building (610,000 sq ft), Aldgate
Tower (317,000 sq ft) and 72 Fore Street (225,000
sq ft).
A FAVOURITE WITH
The City has a very international mix of investors
who consider the district a safe haven for their
capital. Transaction data over the past 18 months
shows the market was popular with Far Eastern
buyers (41%) as well as investors from Germany
(7%), North American buyers, who accounted
for 18% of overseas investment and Far Eastern
buyers (41%).
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THE WEST END
THE WEST END: A SAFE BET
Londons West End property market offers
investors luxury hotels and residential, good
quality offces as well as high street and
high-end retail. Property here is smaller in scale
relative to other areas if you want to spend
200m, the City may be your best bet, but if its
20m, there are a lot of opportunities here. Safe
and robust, it has fewer peaks and troughs than
other London markets.
OCCUPIERS
The West End market has seen steady letting
activity in recent quarters, with a total of 0.72m
sq ft transacted during Q2. Year-to-date take-
up reached 1.49m sq ft, in line with the level
achieved in the frst half of 2012. Q2 saw a
diverse range of tenants taking space across the
wider West End market, led by the TMT sector
and fnancial services occupiers accounting for
19% of all deals.
Prime rents in Mayfair and St Jamess continued
to edge up, having increased by 7% since the
beginning of this year to 107 per sq ft. Other
submarkets such as North of Oxford Street East
and Victoria have also experienced rental growth.
We have seen strong activity at the top end of the
market, with rents in excess of 110/sq ft being
secured for the very best buildings in Mayfair.
West End availability increased by 4% over the
quarter to 3.8m sq ft and refected a vacancy rate
of 4.2%. The increase in availability was driven by
new supply, with a total of 460,000 sq ft coming
to the market during the second quarter. A further
916,000 sq ft is scheduled for completion during
the remainder of this year, 40% of which has been
pre-let.
A serious lack of supply continues to cause the
market to remain static. Looking ahead, we expect
this issue to cause rents in the prime markets,
such as Mayfair and St James, to further rise.
BEST LOCATIONS TO BUY IN
Established prime locations are St Jamess,
Mayfair and Berkeley Square, where prime yields
are 4% for offces and rents are forecast to reach
120 per sq ft. For those with an appetite for
higher returns and interesting opportunities,
areas such as Victoria, Paddington, north of
Oxford Street and Soho are worth a look.
WEST END POST CODES: W1, SW1, W2, SW3, SW7 and W8

MOST FAMOUS FOR: Retail. The West End is a shoppers paradise, offering everything
from cheap and chic fashion to luxury designer goods on its famous streets such as Bond
Street, Oxford Street, Regent Street and Piccadilly. Also known for its theatres and Georgian
architecture.
LANDMARK BUILDINGS: Houses of Parliament, Buckingham Palace, The Ritz Hotel
Prime Rents & Yields Offce
Prime yields (%) 4
Secondary yields (%) 4.75
Prime rents 107
Overseas Investment (m)* 3,431
Overseas Market Share(%) 57
Prime Rent
Forecast (/sq ft)
Q4 2013 Q4 2014 Q4 2015
St James/
Mayfair
110.00 115.00 120.00
Victoria 72.50 75.00 75.00
Soho 77.50 80.00 80.00
North Oxford
Street East
65.00 65.00 70.00
North Oxford
Street West
90.00 90.00 90.00
2.1BN
TRANSACTED DURING
H1 2013
120.00
PER SQ FT RENT
FORECAST IN 2015
4.5%
PRIME OFFICE YIELDS
4.0%
VACANCY RATE
Source: BNP Paribas Real Estate
* Covers the last 18 months
W2
W8
W1
SW1
SW7
SW3
Marylebone
Mayfair
Victoria
Westminster
Soho
ORIENTATION
W2
W8
W1
SW1
SW7
SW3
Marylebone
Mayfair
Victoria
Westminster
Soho
Bond Street
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DEVELOPMENT
Lack of West End supply also explains the
upward pressure on rents and signifcant
developments are few and far between. But a
handful of schemes are being developed that
will bring more space to the market, such as
Avivas 575,000 sq ft mixed-use scheme at
Mortimer Street, Fitzrovia, W1 and The Crowns
W4 Scheme on the West side of Regent street
totalling 190,000 sq ft including 50,000 sq ft of
retail.
A FAVOURITE WITH
Aside from the UK institutions and European
buyers, the market is popular with Far Eastern
investors, who in the past 18 months accounted
for 37% of the overseas investment market,
followed by investors from the Middle East
(15%) and North American buyers (4%).
Regent Street, London West End W1
W2
W8
W1
SW1
SW7
SW3
Marylebone
Mayfair
Victoria
Westminster
Soho
ORIENTATION
W2
W8
W1
SW1
SW7
SW3
Marylebone
Mayfair
Victoria
Westminster
Soho
Bond Street
ORIENTATION
The O2
City Airport
Limehouse
Canary
Wharf
OVERVIEW
E14
E16
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DOCKLANDS
DOCKLANDS: OPPORTUNITY KNOCKS
There are two main property markets in Docklands:
Canary Wharf and the area to the south. On the
Canary Wharf estate it is not often that properties
come to market. When they do, they are large lot
sizes usually bought by major overseas companies
or consortia. It has only been a recognisable offce
market since the early 90s, and has prime offce
rents of 37.50 to 40.00/sq ft in Canary Wharf and
25.00/sq ft in the wider Docklands area.
OCCUPIERS
Canary Wharf is dominated by the banking and
fnancial industry and with frms such as JP
Morgan planning to move there, it is a trend which
looks set to continue.
Despite that, levels of offce letting are low, with
just a total of 123,500 sq ft let so far in 2013 -
down 55% on the same period last year. The largest
deal so far this year saw the Financial Ombudsman
Service take 30,300 sq ft at Exchange Tower, 1/2
Harbour Exchange Square. On a more positive note,
KPMG is rumoured to be in advanced discussions
to take up to 150,000 sq ft at Fitch Ratings 30
North Colonnade, close to its existing headquarters
at 15 Canada Square.
Canary Wharf is a retail destination too: malls such
as Cabot Place are occupied by high-end retailers
including Tiffany and Waitrose.
A FAVOURITE WITH
Middle Eastern buyers accounted for 85% of all
deals undertaken during the past 18 months.
DOCKLANDS POST CODES: E14 and E16
MOST FAMOUS FOR: The Canary Wharf
business district, home to some of the
tallest skyscrapers in Europe.
LANDMARK BUILDINGS: One Canada Square,
ExCel centre and London City airport.
OCCUPIER BREAKDOWN: 60% fnancial,
10% telecoms/IT, 10% professional, 10%
government, 10% other
PRIME RENTS (/SQ FT)
& YIELDS
OFFICE
Prime yields (%) 5
Secondary yields (%) 6.0+
Prime rents 37.50
Overseas Investment (m) 479.00
Overseas Market Share(%) 48
PRIME RENT
FORECAST (/SQ FT)
Q4 2013 37.50
Q4 2014 37.50
Q4 2015 40.00
Source: BNP Paribas Real Estate
582M
TRANSACTED DURING
H1 2013
9.6%
VACANCY RATE
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ORIENTATION
The O2
City Airport
Limehouse
Canary
Wharf
OVERVIEW
E14
E16
ORIENTATION
WC2
Covent
Garden
Centre Point
Holborn
WC1
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MIDTOWN
MIDTOWN: A GOOD MIX
Midtown is a mix of the West Ends historical
buildings and new, modern space investors
might fnd in the City. Deals tend to be between
20m and 50m. Multi-tenanted buildings
provide good asset management opportunities
for investors. 2013 has seen a strong infux of
TMT occupiers with 70% of all occupier deals
being in that sector.
Occupiers
With a vacancy rate of 5.6%, Midtowns offce
occupier market remains robust. Take-up
reached 1.3m sq ft during the frst half of 2013.
Signifcant deals include the 96,500 sq ft pre-let
to Saatchi & Saatchi at 40 Chancery Lane and
GroupM taking 28,500 sq ft at 26 Red Lion
Square.
At the end of Q2, there is approximately 1.55m
sq ft of space available in the Midtown market,
up 8% on Q1 2013. The vacancy rate has also
increased to 5.6%, but remained well below the
10-year average of 7.5%.
DEVELOPMENT
The lack of quality space has encouraged more
schemes to be brought forward, including:
Aldwych Quarter (300,000 sq ft), 10 Bloomsbury
Way (152,000 sq ft) and Africa House, 64-78
Kingsway (120,000 sq ft).
A FAVOURITE WITH
North American and Middle Eastern buyers have
been very active in the past 18 months with
foreign investors accounting for 54% of all deals.
MIDTOWN POST CODES: WC1, WC2
OCCUPIER BREAKDOWN: 50% professional,
15% corporate,10% fnancial, 15% media,
10% other
PRIME RENTS (/SQ FT)
& YIELDS
OFFICE
Prime yields (%) 4.5
Secondary yields (%) 5.25-5.75
Prime rents 57.50
Overseas Investment (m) 1,038.00
Overseas Market Share(%) 54
PRIME RENT FORECAST (/SQ FT)
Q4 2013 59.00
Q4 2014 62.50
Q4 2015 65.00
Source: BNP Paribas Real Estate
824M
TRANSACTED DURING
H1 2013
5.6%
VACANCY RATE
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EMERGING SUBMARKETS
KINGS CROSS
It was once an area that resisted gentrifcation,
offering not much more than an industrial
wasteland and crime. But a 2bn regeneration
project the largest redevelopment in central
London for 150 years will make it such
a signifcant destination when it is fnally
completed in 2020, that it will even have its
own new postcode. Kings Cross Central at N1C
is fast becoming a destination for a range of
offce occupiers, from universities, boutique hotel
operators, property frms and other businesses.
Meanwhile, the 2,000 homes being built will
provide space for a new residential district.
But it isnt just this 67-acre development that
will change the face of the Kings Cross area.
BNP Paribas Real Estate has chosen the area
to develop its frst ever offce site in the UK a
building at the southern end of Kings Cross
Central that includes 360,000 sq ft of offces and
11,000 sq ft of retail.
A stunning show of confdence in the area was
demonstrated earlier in 2013 when Google also
chose Kings Cross to be the home of their new
European HQ. The 1m sq ft scheme recently
received planning permission and is expected to
be complete by 2016.
What makes this area all the more promising is
its excellent transport links, which offer cross-
London services on the tube and connection to
the national rail network, as well a high-speed
train link to Paris. 400m will have been invested
in upgrading and improving access to services
on the Underground, the new Thameslink station
and domestic and international services at the
adjoining St Pancras International station.
SOUTH BANK
Completed in 2012, The Shard has transformed
the London skyline. The building is a vertical city
of offces, world-renowned restaurants and a fve-
star Shangri-La hotel. The frst offce deals for
The Shard have recently been announced with Al
Jazeera taking 28,000 sq ft on the 16th foor and
Duff and Phelps taking 17,500 on part of the 14th.
The terms of the deals are confdential but some
rumours have suggested headline rents as high as
65 per sq ft. News UK has also taken 430,000 sq
ft pre-let at the Place, the Shards sister building.
However, South Bank is undergoing a wider
facelift, as completed schemes such as More
London, home to global frms and government
offces alike, bring the district greater cach.
Transport links will be strengthened by the
redevelopment of London Bridge Station a
project that includes a new bus station, increased
platforms, more trains and destinations and a
concourse bigger than the pitch at Wembley
Stadium.
The Shard, London Southbank SE1
6 Pancras Square, London Kings Cross N1
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STRATFORD
The eyes of the world were on London as it
provided the stage for the stunning 2012 Olympic
Games and Paralympic Games. However, the
major regeneration projects under way in the area
mean Stratford will be a destination in its own
right long after the athletes departed.
With the focus now on legacy, efforts have
turned to completing residential units and offce
schemes. Westfelds Stratford City one of
the largest urban regeneration projects ever
undertaken in the UK has turned Stratford
into a new metropolitan centre, with shopping
and entertainment districts, as well as space
for large national and international businesses.
But signalling the next phase of the areas
development, is the international Quarter at
Stratford City (E20), an offce district being
developed in partnership with Lend Lease and
London & Continental Railways. The scheme will
provide 4m sq ft of prime offce space, which
could accommodate 30-40,000 workers.
Joining the dots will be new transport
infrastructure connecting Stratford regional
station and Stratford international across the
city and to international airports, Heathrow and
Gatwick.
The International Quarter, London Stratford City E20
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RESIDENTIAL MARKET
BACKGROUND & MARKET
2013 will be a turning point for the UK residential
market. London is again tipped to be the top
performing region in the UK, with prices forecast
to grow 7.7% p.a. over the next fve years. This
means that cumulatively, London will have seen
price growth of 69% over the decade to 2017,
while the UK average will be 33%.
While there has been resurgence in the market,
there is still an acute shortfall of new build
housing in the Capital, which is struggling to meet
demand, despite statistics reporting that new
build starts are hitting peaks compared with pre-
crisis fgures. In addition, and despite speculation
over property and wealth tax changes, both
foreign and domestic demand still remains strong
in London.
Other key factors in the rapid recovery of
residential property market in London have been
the continued low interest rates, aligned with
the relative weakness of sterling against certain
currencies and the safe haven of UK property,
whether that is for investment or occupation
circumstances.
INVESTMENT PROPERTY
The property market in central London continues
to attract a wide range of investors, particularly
overseas but increasingly from domestic markets.
These buyers tend to be discerning investors
with a checklist of conditions that need to be
met before committing to buy. This criteria can
be varied but typically centre on the following
- location, amenity, product, specifcation and
importantly rental and capital growth.
Buyers have come to expect a quality product
with a superior level of fnish in order to achieve
the high levels of rent and growth required;
developments need to offer a full range of
amenities to stand out from the competition.
DEMAND & GROWTH AREAS
Given the anticipated price growth in central
London, one could consider all areas to be growth
areas. However, there are pockets that have and
will continue to see accelerated growth.
The south bank of the Thames has started to see
major regeneration with a number of planned
and under-construction high quality schemes,
stretching from Battersea Power Station to the
Shard at London Bridge, which is set to change
the landscape along the river. The Vauxhall/
Nine Elms regeneration area stands out, due to
current activity and this is envisaged to continue
given improved transport links and the proposed
relocation of many businesses and embassies.
These embassies, including the US, Chinese and
Dutch, along with the Northern Line Underground
extension, are the catalysts for growth.
Demand is also improving in areas such as
Holborn (Midtown), Bloomsbury, Farringdon and
the City Fringes which have historically been
known as professional and offce locations. The
appetite for residential has picked up due to
these areas being considered as prime central
London, while being in a lower price bracket
than other more established prime areas, thus
meaning relatively good value with opportunity
for growth - particularly given the proximity to
the West End and the City. Crossrail is the key
catalyst for growth here. Paddington Basin has
undergone urban regeneration, which has seen
the development of a number of residential lead
mixed-use schemes and is an exciting opportunity
area for investors looking to invest outside of the
traditional prime central areas. A similar area
undergoing exciting regeneration is Kings Cross.
One Hyde Park, London Knightsbridge, SW1
Adrian Owen
Executive Director
UK Residential
adrian.owen@bnpparibas.com
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RETAIL MARKET
MAYFAIR
Retailer demand for the traditional luxury locations
of Old & New Bond Street continues to outstrip
supply, meaning signifcant premiums are still being
paid to secure prime units. This unprecedented level
of demand has seen peak Bond Street rents reach
1,200 Zone A - the highest level in Central London.
This level of demand has seen the luxury quarter
extend beyond its traditional boundaries, with streets
such as Mount Street (400 ZA), Dover Street (300
ZA) and Albemarle Street (300 ZA) experiencing
rental uplifts.
REGENT STREET
Regent Street has established itself as a global retail
destination, with strong retailer demand, particularly
for large fagship stores. As a result, record rental
levels have been established by lettings to Hackett,
who have purchased the Ferrari lease for a premium
of 4m and a new rent equating to 640 ZA.
J Crew is shortly to open its frst European store at
153-167 Regent Street, providing around 17,500
sq ft of retail space over three foors. Watches of
Switzerland will open the largest watch store in the
UK, comprising 16,500 sq ft, directly opposite having
agreed a deal to relocate from New Bond Street.
These lettings, amongst others, are strengthening
the tenant mix on the street and its appeal to
international and domestic shoppers.
OXFORD STREET
At the western end of the street, Land Securities Park
House development has provided new fagship space
which has been taken by the likes of Urban Outftters,
Zara and River Island. Prime rents, in the area close
to Oxford Circus, are in the region of 800 ZA.
At the eastern end of the street, the opening of
Primark and forthcoming arrival of Crossrail has
improved perceptions hugely and encouraged
retailers to focus here. A number of redevelopments
are in the pipeline, with large retail foor plates to
be provided to satisfy the demand of domestic and
international retailers.
KNIGHTSBRIDGE
Home to Harrods and Harvey Nichols, Knightsbridge
attracts signifcant numbers of international tourists.
The prime retail pitch is Sloane Street, with a large
number of global luxury brands. In 2013 Tom Ford,
Zegna and Alberta Ferretti have opened fagship
stores at the northern end of the street. Rents are
now in the region of 800 ZA for the best space.
Construction has begun on the redevelopment of
Liscartan House & Granville House at 127/135 Sloane
Street, which will provide in excess of 50,000 sq ft of
new retail space.
COVENT GARDEN
Covent Garden has continued to attract international
brands as it appeals to retailers, shoppers and
tourists, with the likes of Sandro and Melissa taking
new stores close to Apple and Burberry. On James
Street, Michael Kors has taken space at a rent
equating to 750 ZA.
ZONE A & ITZA EXPLAINED.
UK retail rents are often expressed as a Zone A per
square foot / per square metre.
This relates to the established UK method of
valuation, Zoning, which adopts the theory that
the front of a shop the part seen by passers by is
worth more than the rear of a shop.
Therefore a shop with a width of 30ft and depth
of 20ft is worth more than a shop with a width of
20ft and depth of 30ft. Both shops in this example
comprise the same overall foor area 600 sq ft
but by using the zoning method of valuation we
arrive at the conclusion that the shop with the wider
frontage is worth more.
The frst 20ft (or 30ft in a few prime Central London
streets) is known as Zone A, the next 20ft is Zone B
and is worth half of Zone A, the next 20ft is Zone C
and worth half again, and so on.
A highly simplifed example can be seen below:
A rectangular shop unit with a width of 30ft and a
depth of 120ft would be analysed as follows:
Therefore, if we believe the rental tone for this
location to be 200 Zone A per sq ft, the rental
value of the shop would be 249,000 per annum
(ITZA 1,245 sq ft x 200 Zone A).
Zone Dimensions Actual Area ITZA*
A 20ft x 30ft 600 sq ft 600 sq ft
B 20ft x 30ft 600 sq ft 300 sq ft
C 20ft x 30ft 600 sq ft 150 sq ft
D 20ft x 30ft 600 sq ft 75 sq ft
Remainder 40ft x 30ft 1,200 sq ft 120 sq ft
3,600 sq ft 1,245 sq ft
*Floor area expressed In Terms of Zone A (ITZA)
Simon Williams
Head of Investment
Investment
simon.d.williams@bnpparibas.com
INVESTORS QUESTIONS ANSWERED
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From buying a property to owning it, a new market can be daunting. Andrew Cruickshank,
BNP Paribas Real Estate senior director of international investment, answers some common questions
Q1: Im thinking of buying in London. Am I too late
to fnd good buying opportunities?
A: There are different types and quality of buildings
within each asset class and submarket of the City,
matching a variety of risk appetites. This diversity can
be daunting for new investors, so consult an adviser
who can work with you to formulate a strategy.
Q2: Now Im here, how do I access
the market?
A: London is one of the most
accessible markets globally
for overseas investors, market
information is plentiful and there
is a good selection of advisers to
help you. A purchaser will usually
have an adviser such as BnP Paribas
Real estate to introduce on and off
market transactions and provide
support throughout the purchase
process.
Q3: How do I go about deciding the best
asset class and location to invest in?
A: The prime market has recovered
from the downturn and there is strong
competition for core assets. But with
good rental growth prospects for offces
and selected retail, strong investment
performance over the short to medium
term is expected. Riskier assets with
higher initial yields provide interesting
opportunities.
Q2: Now Im here, how do I access
the market?
A: London is one of the most
accessible markets globally
for overseas investors, market
information is plentiful and there
is a good selection of advisers to
help you. A purchaser will usually
have an adviser such as BNP Paribas
Real Estate to introduce on and off
market transactions and provide
support throughout the purchase
process.
Q4: Core areas seem to be trading
at very low yields. Are there safe
investments outside of these areas?
A: The price of core assets is a refection
of security and prospects for strong rental
and capital growth. But there are secure
and long-term income deals on buildings
outside the traditional core areas that
offer marginally higher returns.
Q5: What about if I want to invest a small amount of capital?
A: BNP Paribas Real Estate regularly advises overseas investors on
transactions between 2m and 5m. The West End and its surrounding
areas offer numerous opportunities compared to the City, where lot sizes
are larger.
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INVESTORS QUESTIONS ANSWERED
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Q9: How do I crystallise increases in
rental growth?
A: Rents are adjusted to market value every fve
years. Uplifts in rental value during the lease are
possible, although there is a risk a review wont coincide with the best point of a
rental cycle. Some leases will specify a minimum or maximum uplift or a rise in
line with a cost of living index.
I have a portfolio of investments
already, but Id like to invest in
London real estate for the frst time.
Can you help?
Mignonne Cheng, chairman
of BNP Paribas Wealth
Management for Asia
Pacifc, responds:
Helping clients gain access to
commercial properties in London
has been a unique proposition of
BNP Paribas Wealth Management
which distinguishes us from other
wealth manager players in the
market. Thanks to the strong market
position and scale of operation of BNP
Paribas Real Estate in the UK, we are
able to show our clients interesting
propositions, ranging from GBP tens of
millions to hundreds of millions. Some
of these properties may even be off-
market, exclusive, trophy assets which
are shown prior to public auctions.
With the real estate platforms in Hong
Kong and Singapore, BNP Paribas
Real Estate is further intensifying its
delivery of services to clients in Asia.
Now our clients are serviced, in the
same timezone, by professionals with
frst hand access to the activities
taking place in Europe.
Q6: Id like to make a long-term investment in
London - is the market suitable?
A: One of the attractions of London is the long
occupational leases available. Today it is common
for landlords to secure 10 to 20-year leases on new
offce buildings and these represent ideal secure
investments.
Q7: Now Ive bought a building, how do I
ensure it is properly looked after?
A: Steve Harber from BNP Paribas Real
Estates property management team
answers: For single let investments, the
onus is on the tenant for the majority of
costs and repairing obligations. For multi-
tenanted properties, a property manager
should be appointed. Advisers such as BNP
Paribas Real Estate can also help with rent
reviews, lease renewals, refurbishment and
leasing as part of a full ownership lifecycle
process.
Q8: How will income and capital gains tax
impact my returns?
A: Effcient tax planning is essential to
protect an investment. UK tax laws are
relatively friendly towards overseas
investors.
MAKING SMART INVESTMENT CHOICES
As highlighted in Johns introduction, the London
real estate market has seen huge infows of
capital from around the world; a trend which
looks set to continue. We recently surveyed over
600 investors and occupiers from around the
world on future global investment trends and 73%
of respondents believed that the attractiveness
of UK real estate would increase over the next
two years. The survey also found that the Middle
East and Far East/South East Asia were expected
to be the main sources of inward investment with
London being a hot spot.*

Our research also found that the tax system was
perceived to be a barrier to investing in the UK.
However, these concerns can be alleviated with
careful structuring at an early stage and investors
into the UK can actually beneft from a very
generous tax regime. Turn to our tax case study
on pages 26-27 for an example of such a structure
and some of the tax benefts.
The benefts of using a corporate structure for
higher value transactions (typically over 50
million) as opposed to a direct asset sale can be
signifcant but the process for the two types of
transaction are very different. We set out the key
differences on the following page.
The real estate landscape has also been changing
in respect of how landlords and tenants lease and
occupy the capital citys trophy assets. Shorter
lease terms are becoming more common along
with tenant break clauses. The example Heads of
Terms on page 28 provide an insight into some of
the terms which may be negotiated on a typical
letting.
Over the following pages we hope to make the
legal process involved clearer through case
studies and practical examples. With early
planning, international investors will be able to
take full advantage of the exciting opportunities
London has to offer.
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Head of Real Estate
Nabarro
c.carvalho@nabarro.com
THE LEGAL FRAMEWORK
* Further details about the report and how to get a copy can be found on the inside back cover of this guide.
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ASSET ACQUISITION
Property (asset) sale and purchase
Outline Transaction
Steps
CORPORATE ACQUISITION
Property (corporate) sale and purchase
SELLER BUYER PRE CONTRACT BUYER SELLER
Prepare pre-contract
package - title, draft
contract
Prepare / negotiate draft
contract
Searches
Enquiries
Investigate title
Surveys
Prepare report
Approve / negotiate
draft contract
Due diligence (DD)
enquiries
Prepare DD report
Negotiate draft
contract including
warranties and
limitations
Prepare DD disclosure
documents
Prepare DD responses
Negotiate draft contract
including warranties and
limitations
Pay deposit EXCHANGE CONTRACTS Pay deposit
Both parties now committed to the deal Both parties now committed to the deal
Seller manages property
at buyers direction
Pre-completion
searches
Arrange monies for
completion (including
any third party debt)
PRE-COMPLETION Pre-completion
searches
Arrange monies for
completion (including
any third party debt)
Restrictions on conduct
of business between
exchange and completion
Discharge mortgage Buyer assumes
responsibility
Transfer property
COMPLETION
(CLOSING)
Shares/units/
partnership interest
transferred
Buyer assumes
responsibility
Repeat warranties
(possibility of termination
on fundamental breach)
Repay existing debt and
discharge security
Hold meetings to approve
completion and effect
change of control
Resign directors etc. if
relevant
SDLT
Registration
POST-COMPLETION Stamp Duty if
applicable
Registration at
Companies House
Appointment of new
directors, change of
registered offce etc.
ASSET ACQUISITION
PROPERTY ISSUE CORPORATE
May require consent (i.e.landlord consent). Consent Property automatically transfers as ownership remains the same (N.B. change
of control provisions).
Agreed price for property with apportionments. Price Agreed price for property with adjustments for SPV liabilities.
Split exchange and completion is usual and a
deposit paid on exchange.
Exchange and
completion
Simultaneous exchange and completion often used.
Buyer insures from exchange. Insurance SPV has own insurance which moves on completion, save where part of a
group.
Generally relate to land issues. Indemnities SPVs liabilities remain, tax indemnity (especially for corporate SPVs) common
and may also apply to specifc issues.
Not usual. Buyer relies on enquiries (claims for
misrepresentation).
Warranties SPVs liabilities remain therefore warranties given (subject to limitations and
disclosures).
Discharged at completion. Mortgage Mortgage will not be discharged (unless terms of mortgage or lender require
it).
Rents paid in advance apportioned from comple-
tion date to next quarter day.
Appointments of in-
come and outgoings
Buyer acquires the SPV and adjustment needs to be made to the purchase
price to refect all apportioned income and liabilities of the SPV. Completion
accounts.
Usually in the form of Commercial Property Stand-
ard Enquiries (CPSEs). Requisitions on title and
Land Registry checks made before completion.
Preliminary enquiries Due diligence enquiries and responses prepared. Warranties and disclosure
letter typically required (and may be supplemented by preliminary enquiries).
Contract normally includes standard commercial
property conditions.
Standard conditions Contract does not normally include any standard conditions and will be
negotiated between the parties.
Normally set out in the case of investment
property with buyer having control.
Management
between exchange
of contract and
completion
SPV more of a moving target given it has continuing business, and the level
of control of the buyer is subject to negotiation.
Stamp Duty Land Tax at 4% of property price. Transfer taxes Stamp Duty at 0.5% of share price (for UK company). Generally no Stamp Duty
if company offshore.
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TAX CASE STUDY
CASE STUDY
Nabarro tax partner Kirsten Prichard Jones
presents a case study illustrating some key
features of the UK tax regime as they apply to an
investment in UK real estate by a non-resident
as well as looking at some of the potential tax
savings.
S Plc is a Singaporean based institutional investor
looking to acquire London Building, a trophy offce
property in central London. The purchase price
is 100m, and this will be funded 50% by bank
fnance.
PURCHASE AND HOLDING STRUCTURE
S Plc establishes J Co, a Jersey company, to
acquire London Building. S Plc funds J Co with a
mixture of equity and shareholder loan.
J Co purchases London Building for 100m. Stamp
Duty Land Tax (SDLT) is payable at a rate of
4% leading to a 4m tax charge . Note that had
London Building been held within an appropriate
corporate wrapper, S Plc could have acquired
the holding vehicle and no SDLT would have been
due. Assets in attractive corporate wrappers can
therefore achieve higher sale prices.
No value added tax (VAT) should be payable on
the purchase, as London Building should transfer
as a going concern, by virtue of being tenanted.
VAT should not be payable on a future disposal of
London Building, whether it is structured as the
sale of the shares in J Co or an asset sale.
S PLC
J CO SELLER
BANK
LONDON
BUILDING
50m
Debt
50m
Debt & equity
100m
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TAX CASE STUDY
Kirsten Prichard Jones
Tax Partner
Nabarro
k.prichardjones@nabarro.com
INVESTMENT HOLDING PERIOD
UK income tax is payable on the net rental income
generated from London Building. Tax deductions
are available in respect of interest payments on
bank debt and appropriate shareholder loans,
capital allowances (tax relief for depreciation)
and certain management expenses. The net
effect is that J Co should be subject to a very low
effective rate of UK tax.
Interest on J Cos shareholder loan will be
deductible to the extent that the amounts payable
represent arms length terms under transfer
pricing principles. In addition, the terms of J
Cos shareholder loan will need to be carefully
documented to avoid UK withholding tax.
Tenants and managing agents can be required
to withhold tax from payments of rent to
offshore investors such as J Co. J Co can avoid
this by registering with HM Revenue & Customs
(HMRC) as a non-resident landlord and
applying for permission to receive rent without
any withholding. This is a straightforward process
and HMRC should allow J Co to receive rent
without withholding provided J Co keeps up with
its compliance obligations.
J Co is not subject to tax in Jersey on the rental
income from London Building. Payments of
dividends and interest are not subject to
withholding tax. S Plc picked Jersey for these
features, however, similar results can also be
achieved with other jurisdictions.
J Co should be able to recover all VAT costs
suffered on acquiring and managing London
Building. This is done by J Co opting to tax
London Building and charging VAT on tenants
rent.
FUTURE DISPOSAL
In future S Plc can exit its investment by way of a
sale of either J Co or London Building. A purchaser
is likely to favour a purchase of J Co to avoid a 4%
SDLT charge.
No UK direct tax charges should arise on a
disposal of London Building or J Co, provided J
Co has been properly managed and controlled
in Jersey and has held London Building as an
investment (as opposed to trading stock).
S PLC
J CO
BANK
LONDON
BUILDING
Interest
Rent
Interest &
dividends
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1. Premises Level 5, London Building, London EC2.
2. Landlord J Co Limited
3. Tenant New Tenant Limited
4. Term Ten years with tenant option to break at year fve.
Historically, City offce leases were at least 15 year terms, but shorter leases
(510 years) are now common with tenant options to break.
5. 1954 Act
protection
The lease will be excluded from the provisions of the Landlord and Tenant Act
1954.
Under the 1954 Act a tenant who carries on a business has a right to remain when
the lease expires and request a new lease on predominantly the same terms for up
to 15 years. The landlord can oppose this on certain grounds, but compensation may
be payable to the tenant. Alternatively, parties may agree from the outset that the
lease will be excluded from the 1954 Act.
6. Rent 550,000 p.a. (based on 55.00 per square foot) exclusive of VAT and all other
outgoings rent payable quarterly in advance on usual quarter days.
7. Rent
Commencement
Date
Nine months from the date of the lease.
Rent-free periods may be given for an initial ft-out period or to incentivise the tenant
to move into a particular building.
8. Rent reviews The rent is subject to an upward only rent review at the expiry of the ffth year of
the term.
The rent will typically be the open market rent with fve yearly review cycles. It will
usually be reviewed (upwards only) to the open market rent payable at that date,
although fxed rent increases and index-linked rents are becoming more common.
9. Assignment and
subletting
Assignment and underletting permitted with landlords consent not to be
unreasonably withheld or delayed and subject to specifed conditions.
The outgoing tenant usually enters into an authorised guarantee agreement
(guaranteeing the incoming tenants performance of obligations under the lease).
Ideally, underletting will be excluded from the 1954 Act, ensuring any undertenant
has no right to a new lease at expiry of the underlease. A landlord will not usually
allow more than two tenancies at any one time.
Sharing is usually permitted with group companies, provided no landlord and tenant
relationship is created.
10. Repair Tenant responsible for keeping premises in good repair. Landlord will maintain
structure and common parts of building subject to the tenant paying a fair and
proper proportion of the landlords costs of maintenance.
For a typical offce lease of part of a building, the premises will exclude all external
walls and structure. The landlord will be responsible for maintaining the structure,
exterior and common parts, with the tenants paying a proportion of these costs
through the service charge. A tenant may insist on a service charge cap but this may
lead to a shortfall which the landlord would have to cover.
At the end of the term the tenant is expected to hand the premises back in full repair.
11. Insurance Landlord insures building.
For institutional leases the landlord usually insures the building and recovers a fair
proportion of this cost from the tenant. Insurance will also cover loss of rent for a
specifed period (usually three years).
If the building is damaged by an insured risk, the landlord will be responsible for
reinstating the building and the rent suspended. If it cannot be reinstated within
three years there will usually be a right for either party to terminate the lease.
UNDERSTANDING HEADS OF TERMS
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The landscape of property fnance in London
has changed dramatically in the last 12/18
months. The situation is far more comfortable
for borrowers now than it was at the exit of the
2008/2009 crisis.
Today they can beneft from an historical low
all-in cost of debt and from an abundant facility
supply. In the bigger lot sizes, competitors have
even mentioned a huge available liquidity. But
it is important to stress that this is true for the
fnancing of high quality assets only. Lenders are
still very cautious for non-prime / non-London
properties.
An historical low all-in cost of fnancing
Mid 2013 the gross cost of money could be
estimated around 3.20%/3.30%- 5 year swap plus
an average interest rate margin- 100bps under its
level end of 2012, 200bps under its average 2011
level. The general downward interest rate trend
frst, and then the decline in average margins
since mid-2012 explain this historical low in all-in
cost of fnancing.
An abundant facility supply. Attracted by the
2010/2011 comfortable margins and safer
structuring features post-crisis, a number of
shadow bankers have entered the commercial
real estate debt market since then. Around 120
new players have been registered during the last
three years, 50 in the last 12 months. They are
insurers or commercial real estate debt funds.
On the banking side, we still notice a number of
international banks on the London market. Almost
10 German banks are still active and during the
last year weve noticed the US banks coming back.
Two of the 2012 landmark transactions were
arranged by the leading US investment banks.
The Blackstone acquisition of Adelphi has been
fnanced by a 220m mortgage debt, structured
and underwritten by Morgan Stanley, Devonshire
Square Estate. The other sizeable Blackstone
acquisition was fnanced by a 220m mortgage
facility arranged by Goldman Sachs. US bank
players are also interested by banking deals,
like Wells Fargo who entered in a club deal with
RBC and Barclays to fnance 99 Bishopsgate.
It then appears that a huge infux of lenders are
seeking new business, for the best interest of
borrowers, both in terms of debt cost and facility
availability.
Perhaps as a consequence of the recent senior
real estate debt margin shrinking, we also notice
an increase of mezzanine fnancing suppliers.
Some real estate debt investors choose to
increase the risk profle of their commitment
in order to fulfl the requirements in terms of
returns.
Only fve issues occurred on the CMBS market
since January 2012, so we cant consider that
this market has re-opened yet, perhaps as a
consequence of the alternative supply described
above.
LONDONS DEBT MARKETS:
Romain Simon
Head of Real Estate Finance UK
BNP Paribas Bank
romain.simon@bnpparibas.com
DEVELOPMENT JVS
Paul Henwood, Senior Director of City Investment
explains how development joint ventures work
in the London market. A joint venture agreement
with an experienced market participant will
help a new entrant to understand the initial
investment process, the deal economics and
any potential risks involved. In a market where
the competition for assets is extremely strong
the expertise, proven track record and deeper
understanding of market dynamics that an
experienced partner can bring will ensure that
any bids are more competitive.
For established participants, a joint venture
agreement can provide access to much sought
after equity. With the reduction in bank lending
following the global fnancial crisis, investors
have had to look beyond their traditional sources
of capital to enable them to take advantage of the
investment opportunities available.
Established owners may choose to sell a
percentage of their existing assets or bring in a
partner on a new opportunity, allowing them to
either reduce their level of risk associated to a
particular asset or invest in an opportunity they
would not normally be able to access without
additional equity.
2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD
Asia 28.5% 0.0% 3.9% 15.5% 22.7% 39.6% 27.7% 57.2% 36.5%
Middle East 38.2% 56.7% 42.5% 61.6% 17.6% 49.8% 52.2% 7.6% 14.7%
North
America
30.3% 39.2% 16.7% 22.4% 29.4% 19.9% 34.0% 28.9% 3.8%
Europe 9.6% 11.6% 35.7% 8.7% 8.1% 2.4% 19.0% 24.7% 6.1%
PERCENTAGE OF OVERSEAS INVESTMENT DEALS COMPLETED WITH A JV PARTNER, BY SOURCE OF CAPITAL
Source: Real Capital Analytics, BNP Paribas Real Estate
DEVELOPMENT JVS WITH BNPPRE
Thomas Charvet, Head of UK Property
Development highlights the opportunity to
partner with BNP Paribas Real Estate on
development joint ventures.
For those seeking exposure to the London
development market, the path from identifying
suitable opportunities through to acquisition,
planning and construction can make this form
of investment seem prohibitively challenging as
opposed to a genuine alternative to investing in a
standard income producing asset.
However, in partnering up with the right London-
based developer or development manager,
investors can tap into the local knowledge and
the technical expertise necessary to manage
the design, construction and marketing of their
development.
BNP Paribas Real Estate has been involved in
property development for 40 years and is a major
player in the French and European markets with
over 125,000 sq m of commercial foorspace
delivered in 2012 and over 2,900 residential
units to be delivered in 2013. Our business
volume for property development was over 1.7bn
Euros in 2012. In London, our 33,000 sq m offce
development at Kings Cross is now on site and
will be delivered at the end of 2014.
As your development partner BNP Paribas Real
Estate Property Development can manage the
fnancial, administrative, design, technical,
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marketing and legal aspects of the development
process. We project manage each development
in-house meaning we keep control of every aspect
of the process, our in-depth technical knowledge
ensures that every building is treated like a
prototype. Our size and experience means that
we have the negotiating power with contractors
to agree the best deals for our partners and our
experienced in-house commercial teams mean
that we can also provide detailed marketing
strategy and agency advice.
The London development market is currently
booming and continues to be an increasingly
attractive prospect for investors. However, a
development project is a relatively long-term
commitment and one with a number of challenges
and risks that must be navigated; it is therefore
paramount to choose a development partner that
you can trust.

A number of investors therefore choose to ask
their development partner not only be a service
provider but also to take a fnancial stake in the
project. In this type of partnership BNP Paribas
Real Estate Property Development is unique. A
partner with the fnancial surety coming from
our position as a wholly-owned subsidiary of
the largest Bank in the Eurozone coupled with
the local knowledge and expertise to deliver the
project on the ground.

BNPPRE are now focusing on expanding our
development business into the London market
and we are actively acquiring development
opportunities. The key areas of our business are
as follows:
1. Direct acquisition of development opportunities.

2. Joint venture with institutional and global
corporate entities seeking to invest in the London
market. We can put equity alongside and act as
a service provider and development manager to
deliver the projects.

3. Where institution and large corporate
entities wish to retain control, we will act as a
development manager.
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South Bank
London
Bridge
West End
Midtown
City
Docklands
Northern
Fringe
Bank
Holborn
Kings Cross
Bond Street
Canary Wharf
KEY TRANSPORT CHANGES
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CROSSRAIL AND CROSSRAIL 2
The 16bn project linking Maidenhead in the West
and Shenfeld to the East, via central London is now
well underway. The tunnelling work has passed
through Bond Street and Tottenham Court Road
and major construction is taking place to build the
stations at Moorgate, Paddington and Canary Wharf.
Work is on time and on budget with the frst trains
due to run in 2018.
Already the effects of Crossrail are beginning to
be felt in the investment markets. In February
2013, British Land purchased the Ealing Broadway
Shopping Centre for 142.5m. Once Crossrail
completes, Ealing will be just 13 minutes from
Heathrow, 19 minutes from Liverpool Street and 26
minutes from Canary Wharf.
In early 2013, Transport for London released a
consultation paper examining potential route
options and the business case for Crossrail 2. This
will run from Wimbledon in the South West to
Tottenham in the North East via central London.
Whilst not operational until 2030 at the earliest,
it will also change the landscape of London by
dramatically altering commuting times. Wimbledon
to Tottenham Court Road would take just 14
minutes, compared with a journey of around 35
minutes currently.
HS2
High Speed 2 is a proposed high speed rail
link between, in the frst instance, London and
Birmingham and then a second phase connecting
to Manchester and Leeds. By 2026 the 33bn
scheme will reduce travel times between London
and Birmingham by over 30 minutes and add vast
new capacity to the rail network freeing up existing
infrastructure for more commuter trains. The
government estimates that for every 1 invested 2
of growth will be brought to the economy. Moreover,
the scheme is estimated to support more than
40,000 jobs.
The London terminal for HS2 will be at Euston
station and an interchange will be constructed in
the West at Old Oak Common, linking to Heathrow
airport. Coupled with the potential link with
Crossrail 2, Euston has the potential to be a key
transport hub in the future, which will impact on
property requirements in the area.
HIGH SPEED 1
The UKs frst high-speed domestic train
service has slashed journey times from Kent to
Londons St Pancras Station. The line includes
Stratford, which may be served by international
Eurostar services after the 2012 Olympic Games.
Completion is expected by 2020.
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KEY TRANSPORT CHANGES
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LONDON SKYLINE
NEW TOWERS
Offce towers in London have been around since the
1960s. However, anyone familiar with London will
be aware of the signifcant impact that new offce
towers are having on the skyline in and around the
City of London.
HISTORIC TOWERS
Over the last 10 or 15 years a number of signifcant
City tower buildings have been stripped back to the
frame and substantially redeveloped (Tower 42, 125
Old Broad Street, City Point and Aviva Tower). 30 St
Mary Axe (The Gherkin) has joined them as a group
of iconic buildings with typical foor plates in the
order of 10,000 sq ft. Many of them have taken a
few years to fully let up after development, but once
let they tend to exhibit lower than average vacancy
rates and retain strong rental levels. All these
buildings tend to be popular with overseas law frms
and boutique fnancial sector organisations.
CURRENT
The arrival of Heron Tower in the City and The
Shard at London Bridge has presented London with
two brand new iconic offce towers.
Heron Tower has been fnished for over a year
and its timing has not been ideal for the owners.
However during 2013, aggressive pricing on the
lower part of the building has increased the speed
of leasing, and rents more typically associated with
premium tower buildings are now being sought.
The Shard is an altogether different building not
just in location but in overall size (1.2 million sq
ft of which 50% is offces) and its make up (i.e. a
true mixed use environment with residential, hotel,
restaurants and public viewing gallery). The building
has just been completed and leasing activity has
been relatively slow up to now. However its sister
building, The Place has just been let as a whole
to News Corporation which will no doubt give the
developer and investors confdence. Transactions
have been secured and are in negotiations with
fnancial, professional, media and energy businesses
exemplifying the diverse nature of the occupier
base for towers outside of the City of London.
NEAR FUTURE
In 2014, three new tower buildings will be
completed on the eastern side of the City The
Leadenhall Building, 20 Fenchurch Street and
Aldgate Tower. Together these three buildings
will provide 1.5 million sq ft of new offce
accommodation. Approximately 600,000 sq ft
has already been let in parts of the former two
buildings, leaving about 300,000 sq ft in each of the
three still to be let.
LONGER TERM
The unprecedented delivery of new tower buildings
will slow down from the end of 2014. The next one
is Angel Court which will provide 300,000 sq ft in
2016. In 2017, W R Berkeley will be delivering their
Lime Street tower, The Scalpel, this is a brand new
tower of around 380,000 sq ft part of which will be
occupied by the owner.
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LONDON HOT SPOTS
London continues to be seen as the leading European
city for most employment sectors and its a city alive
with regeneration schemes and transport projects.
Here we highlight the top emerging trends.
Currently, the supply of
offces available in the
Hammersmith market is
relatively limited and a
number of recent deals have
further reduced supply. Whilst
not yet completed, Pernod
Ricard will be taking 35,000
sq ft at the Development
Securities / SWIP scheme, 10 Hammersmith
Grove, at a rent of 47.00 per sq ft - with good
interest in the remainder of the building.
Retail analysts Dunnhumby have pre-let 115,000
sq ft at Westerlands 184 Shepherds Bush Road
at a rent of 39.50 per sq ft and several lettings
at LaSalles Griffn House, Hammersmith Road,
including Virgin Media (advised by BNPPRE) and
Reach Local, mean this building is now fully let.
Rents achieved at Griffn House range from 34.50
per sq ft, agreed by Virgin Media in early 2013, to
the most recent letting to Reach Local at 37.50
per sq ft, which shows that the restricted supply
is forcing rents upwards.
A number of known occupier requirements
suggest that this letting activity will be
maintained over the coming months, with the
restricted development pipeline suggesting
further rental growth.
Farringdon is one of
the most in demand
London locations
in at the moment,
attracting investors
and occupiers.
The area has a mix
of historic buildings with a great blend of retail,
restaurants, offces, hotels and residential. It
has become an increasingly popular location
with offce occupiers over the last decade or so,
which has led to some larger offce schemes and
rental growth. This has been escalated over the
last three to four years, as the area has proved
to have the right characteristics for media and
technology occupiers either relocating from the
more expensive West End or setting up in London
for the frst time.
One of the attractions of the area has always
been the transport links at Farringdon Station
the Underground running from east to west and
the Thameslink mainline running north to south.
By 2018 the new Crossrail station will be built,
which will further enhance the areas popularity.
It will be the interchange between the only two
mainlines which cross London.
The recent arrival of Amazon shows the areas
popularity with growing businesses they
acquired 50,000 sq ft in Glasshouse Yard in spring
2012 and a further 210,000 sq ft at 60 London
Holborn Viaduct, in summer 2013.
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TMT (technology, media
and telecom) has
driven London offce
occupational demand
over the past three
years. The proportion of
take-up has moved from
around 15% to 30% and
has compensated for the drop in fnancial services
demand.
The typical TMT occupier tends to take a broad view
on the various London locations but the following
are typical observations from the market and from
our London TMT survey published in autumn 2012:
Core West End is normally too expensive. Core
City and Docklands are seen as too boring and
full of suits. Anywhere else is considered with
preference for interesting, characterful buildings
and locations.
Shoreditch, more than any other London submarket,
has shown how a previously rather down-at-heal
fringe location can be transformed into a go-to
hotspot. It is similar to Clerkenwell a few years
ago, but with the added mix of hip hotels like the
Hoxton, leading art galleries like White Cube and
the presence of Silicon Roundabout (Old Street), as
the hub for transport and offce regeneration. There
are a number of major new offce schemes being
delivered in the area and there is no doubt that
Shoreditch is now a hot and established London
offce location.
With an offce stock of 7.8
million sq ft, Croydon is
one of the largest offce
centres in the UK and has
the greatest concentration
of offces in the South-East
of England, outside central
London.
It is strategically located approximately eight
miles south of central London and seven miles
north of the M23 and M25 motorway intersection.
Rail communications to Croydon are excellent
with East Croydon train station providing a
regular service to central London with a journey
time of 15 minutes. Gatwick Airport is also easily
accessible by train, with a journey time of less
than 16 minutes.
Croydon has a diverse range of offce occupiers
but is best known as a major location for the
public sector which employes around 16,000
people employed within that sector there.
There is also a high proportion of fnancial
frms operating in Croydon, with a particularly
strong representation of insurance companies
which include Mondial, Chartis Direct and Direct
Line. In addition, the engineering sector is well
represented being home to TPS Consult, Atkins
and Mott MacDonald.
Londons position as
a leading educational
centre is gaining
momentum. Three
of the worlds top 20
ranked universities
are in London and
student numbers
across all higher
educational institutions in the capital are set to
grow in spite of recent fee increases. It has been
calculated that over 17% of UK students are based
in London, which may be set to grow as a result
in the increase in applications from overseas
students primarily from Malaysia, Hong Kong
and the US. A shortage of purpose build student
accommodation in the capital points to an asset
class which will continue as a sought after
investment opportunity.
The continuing
strength and
popularity of the
West Ends traditional
shopping locations
such as Oxford Street,
Regent Street and
Bond Street has
meant that new locations are being established.
These include the creation of luxury shopping in
Mount Street where Grosvenor has transformed
The regeneration of Nine
Elms on the Southbank will
transform the area into
an ultra-modern, exciting
destination in central London
offering 16,000 new homes,
25,000 new jobs, new schools,
parks and a culture and arts
centre.
Developers such as St James Group, St George
and Ballymore have constructions underway with
more in the pipeline. The new US Embassy will
open in 2017, New Covent Garden Market will be
revitalised, and Riverlight and Embassy Gardens
are two residential developments currently under
construction with planning permission approved on
15 more buildings. Planning framework supports
the emerging dynamic cluster of tall buildings at
Vauxhall at St. Georges Wharf - Vauxhall Tower
sitting at the centre of this cluster.
Over 1 billion is being spent on new infrastructure
including two new tube stations and up to 3km
of the Thames riverside is being opened up to
the public creating an attractive and vibrant
environment.
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the tenant mix. Additionally, Albemarle and Dover
Street have seen retailers seeking units that are
in close proximity to Bond Streets luxury location.
The Crown Estate is investing signifcantly
into St Jamess, where lifestyle brand Barbour
International is the latest retailer to secure a
fagship store at The Crowns recently completed
100 million St Jamess Gateway redevelopment
between Piccadilly and Jermyn Street.
Meanwhile, the high level of consumer spending
in the City of London continues to generate
exciting new retail opportunities. One New
Change, completed three years ago has now
become an established retail and restaurant
venue. Further key developments which are
taking place in the core of the City, include
Bloombergs new HQ fronting Walbrook, Cannon
Street and Queen Victoria Street, where the
retail and restaurants to be developed will prove
dynamic and exciting - widening the attraction
of Cheapside, where Quadrant Estates 100
Cheapside development, with two prime units,
completes in 2014.
Outside the Citys core, New York-based
Ashkenazy Acquisition Corporation has acquired
the famous Old Spitalfelds Market, which
along with British Lands redevelopment of the
nearby two-acre Shoreditch Estate, will further
strengthen the Spitalfelds area as the Citys
Covent Garden.
These developments will further encourage seven
day a week trading for many of the Citys retail
and restaurant locations.
Over the last decade,
sustainability
has become a
mainstream
consideration
and key driver in
property investment
decision-making.
There is increasingly
compelling evidence available supporting a
value shift as a result of energy effciency and
wider sustainability factors, leading to improved
proftability of investments and their long-term
value, reduced void costs, longer leases and
brand reputation. The best occupiers are now
demanding sustainable buildings because they
can result in reduced operational costs, an
enhanced quality to the work environment and
a straightforward link to corporate strategy and
reputation, particularly those headquartered in
London.
There are a variety of
discretionary building
certifcation and reporting
mechanisms, including
BREEAM, LEED, Energy Star
and GRESB. In addition,
investors need to be aware
of UK statutory restrictions
imposed by the CRC Energy Effciency Scheme (a
mandatory energy effciency and carbon emissions
reduction scheme) and the requirements for
Energy Performance Certifcates to be provided
upon the sale and leasing of property. Water
effciency, biodiversity enhancement and
sustainable transport opportunities can serve
to enhance the environmental performance of
assets under management. The adoption of green
leases, providing a framework for engagement
on sustainability issues, is also beginning to gain
momentum.
Through face to face interviews and an on line poll, Nabarro secured the views
of over 600 global real estate investors, occupiers and advisers to build a
picture of the short, medium and long-term outlook for the UK as a destination
for real estate investment.
To read a full copy of our research report Global Investor Appetite: Whos
Hungry for UK Real Estate? please go to www.nabarro.com or please email
info@nabarro.com to request a copy.
Nabarro LLP
Lacon House 84 Theobalds Road London WC1X 8RW
T +44 (0)20 7524 6000
www.nabarro.com
Global Investor Appetite:
Whos Hungry for UK Real Estate?
The UK is not just
about London - there
are increasingly
attractive alternative
investment locations.
London is not just the
capital of England
but the most important commercial centre in
the UK. The strength of the micro economy and
breadth of tenant base attract domestic and
overseas investors. However, there are substantial
commercial centres throughout the UK and a
thriving investment market - in recent years non-
London investment turnover has reached between
17bn and 20bn. The top six regional cities in
the UK (Birmingham, Leeds, Manchester, Bristol,
Edinburgh and Glasgow) provide over 100m sq
ft of offce space alone. These centres also offer
prime quality high street shops, state-of-the-art
shopping centres, and long-let modern logistics
units. Many of the leading UK universities
are located in the regional cities. There is an
established infrastructure connecting the regions
to London - with road and rail connections
undergoing signifcant improvement. In general
these markets offer higher yields than central
London and are often good prospects for rental
growth.
Through face to face interviews and an on line poll, Nabarro secured the views
of over 600 global real estate investors, occupiers and advisers to build a
picture of the short, medium and long-term outlook for the UK as a destination
for real estate investment.
To read a full copy of our research report Global Investor Appetite: Whos
Hungry for UK Real Estate? please go to www.nabarro.com or please email
info@nabarro.com to request a copy.
Nabarro LLP
Lacon House 84 Theobalds Road London WC1X 8RW
T +44 (0)20 7524 6000
www.nabarro.com
Global Investor Appetite:
Whos Hungry for UK Real Estate?
CHANGING THE GAME
FOR INTERNATIONAL INVESTORS
The investment game is all about the right
connections. With an experienced team, a
strong track record in Europe and dedicated
platforms in Asia, the Middle East and North
America, were your route to investing in London.
Talk to our game changers
for international investment at:
realestateforachangingworld.co.uk