“It’s quite impossible to replicate London”

London is one of the principal markets of the AFIAA Investment Foundation. We have asked its Managing Director, Ingo Bofinger, why the city remains attractive for real estate investors despite Brexit and the corona pandemic.

AFIAA continued investing in London even after the UK voted in favour of Brexit. Were you concerned about the country’s economic development?
We did not regard Brexit as a reason to stop buying further properties in London or cancel scheduled building projects. Like our investors, we take a long-term strategic view of the markets. If we are generally convinced of a location, we will not be swayed by political events.

Which arguments are there in favour of the London real estate markets?
Apart from being one of the oldest and most important financial centres in the world, London is also one of the most dynamic cities worldwide, a real ‘destination’. Thanks to its history and language, as well as the connections and networks that have evolved, London’s role as a financial centre cannot be replicated. The city will remain one of the most dynamic hubs for financial services and the new media and tech industry – and hence one of the world’s main office locations. Since London is also one of the most transparent markets, we fundamentally believe in the location.

 

Ingo Bofinger, Managing Director AFIAA Investment Foundation

 

Isn’t demand for office space affected by the economic downturn in the wake of Brexit and the pandemic?
The effects can be felt, but not to the degree that was often predicted. There is certainly no slump in rental prices – and CBD vacancy rates are actually rather low compared to the financial crisis. In the next five years, vacancy rates may rise and rents may go down slightly. But we expect London to rebound from the Brexit and pandemic effects in the long term – not least due to the size of the market and its unique nature.

What is the rental situation at AFIAA’s properties in the UK capital?
All of the properties are fully rented. We now hold properties in all key inner-city submarkets, the City, Midtown, Soho, St James’s and Victoria. The tenant structure varies in these submarkets, with the City dominated by the financial sector, St James’s and Victoria benefitting from their proximity to the government and the West End attracting the IT industry. Hence, our portfolio is also well diversified within London.

How is the Gresham St Paul’s building project coming along?
The renovation work has been completed and the building has received an excellent response from the market – as our successful letting activities show. On 1 February of this year, even before the completion of the building work, 90 percent of the space had been rented to creditworthy tenants for 15-year periods.

 

“Our decision to renovate Gresham St Paul’s went against the general trend.”

 

What was the occupancy rate at the start of the building work?
Zero percent; we assumed the full risk. In the UK, companies tend not to rent office or commercial space on the basis of building plans. After all, signing a tenancy agreement means taking on the responsibility for maintaining and repairing all structural building components.

Which factors played a decisive role in your success?
Location is certainly a key factor. The property is situated in London’s city centre, right in the middle of the financial district, just a stone’s throw from the Bank of England. The other aspect is its exceptional building quality. The renovation was based on plans by the multiple award-winning architects Wilkinson Eyre and realised by Stanhope, a renowned British project developer. With its refurbishment completed, Gresham St Paul’s has obtained Breeam excellent rating and features around 16,000 square metres of top-class office space, terraces offering magnificent views of St Paul’s Cathedral and full amenities for office workers, including a lobby to rival any hotel and a café. To some degree, we benefited from the insecurity that dominated London after the Brexit vote.

What does that mean in concrete terms?
Our decision to renovate went against the general trend. Since many investors and project developers have put new construction projects on hold in the last few years, office space in prime locations is now very scarce.

 

“At present, the returns at which one can buy properties in London are much higher than in other prime locations.”

 

What are the anticipated returns on the investment?
We expect returns of over four percent – a high figure for a building in this top location.

Is there still a window of opportunity for further acquisitions in the UK capital?
At present, the returns at which one can buy properties in London are certainly much higher than in prime locations in Germany or France. But windows of opportunity are not really important for us: We are not driven by cyclical considerations and buy properties in any market situation. For us, the deciding factor is a secure cash flow, that is, first and foremost, the location and quality of the properties.

Are you planning any further investments in London?
Our properties in London account for approx. 22 percent of the portfolio of the AFIAA Global investment group. That is a suitable investment share for the size of the market. But we always keep an eye on the opportunities that arise in the market.

The full interview has appeared in the ‘Immobilien Business’ magazine on 1 April 2021.

 

Are you interested in international real estate investments?

We offer Swiss pension funds both direct and indirect international real estate investments. For direct investments, choose the AFIAA Global investment group; for indirect investments, choose the AFIAA Diversified indirect investment group.

More about AFIAA Global More about AFIAA Diversified indirect