EPF buys third London property for £148mil

By Thean Lee Cheng, The Star

PETALING JAYA: The Employees Provident Fund (EPF) has bought a commercial building in central London from Union Investment for £148mil. It marks the EPF’s third property investment there since announcing an allocation of £1bil for British property purchases, Savills Rahim & Co said.

EPF confirmed the deal.

Union Investment, a Germany-based fund, is one of Europe’s leading asset managers for private and institutional clients.

EPF, in just seven months of unveiling the buy-British plans in August, has spent £485mil of the £1bil allocation.

The central London and international team of London-based property consultancy Savills handled the sale of the 225,000-sq-ft office building, Whitefriars.

The building is located at 65, Fleet Street, London EC4. It is currently used by law firm Freshfields Bruckhaus Deringer as its headquarters until 2021. It has a yield of 5.75%.

EPF’s other two property purchases are One Sheldon Square in Paddington Central, which was bought for £156mil, and 40 Portman Square near Oxford Street which was acquired for £180mil. The two properties have yields of 5.75% and 5.55% respectively.

Notable buildings close to Whitefriars include Goldman Sachs’ campus HQ (Peterborough Court & River Court), Deloitte’s headquarters, Land Securities’ development at New Street Square and the Royal Courts of Justice.

Whitefriars was developed by Kumagai Gumi and completed in November 1989. It provides approximately 232,825 sq ft of net internal air-conditioned office, retail and public house accommodation in two office buildings, as well as 24-car parking spaces.

The space benefits from excellent natural light and the upper floors overlooking central London, River Thames, the London Eye and the Houses of Parliament. In property jargon, it was developed to Grade A specification.

The purchase is part of EPF’s strategy to diversify its portfolio of income-generating assets and to increase its exposure to the property sector.

So far, equities have been its largest contributor, representing 45.45% of the fund’s total gross investment income.

Last year, EPF’s gross investment income reached a historial high of RM24bil, of which RM11bil was earned from equities, and RM103mil from property and miscellaneous income.

On the possibility of buying properties in Australia, a source close to EPF said this “may be in the pipeline in the future. But we are focused on UK right now.”

The prime central London market has been recovering strongly since the first quarter of 2009. Prime yields are currently around 4% in the West End and 5.25% in the City, compared with about 3.5% and 4.25% respectively prior to the crash in 2007.

Said a Savills source: “With greater demand than supply, we anticipate that prime yields may be sustained, if not compress slightly more.

“Demand for assets is being driven largely by overseas investors attracted to the UK due to the high-quality assets, tenants, long leases, landlord bias legal structure and upward only rent reviews, as well as, historically low interest rates, weak pound sterling and strong rental growth projections over the short to medium term.

“In terms of the prime markets outside London, the recovery is slower while the secondary/tertiary markets remain volatile,” the source said.