When work halted on the Pinnacle tower in the City of London, most investors saw little more than an abandoned site. AXA Real Estate Investment Managers viewed it as an opportunity.
“The foundation exists at this building. This is one thing we like a lot” because it will allow faster completion than rival projects, Pierre Vaquier, chief executive officer at the property unit of Europe’s largest insurer, said in a March 10 interview.
Speed is an essential part of AXA’s acquisition of the Pinnacle site because office rents in the financial district are forecast to rise about 16 percent through 2018 by broker CBRE Group Inc. In that year, occupiers have options to leave 3.9 million square feet (362,000 square meters) of offices in the city, data compiled by Knight Frank LLP show.
“We were quite bullish on taking risk,” said Vaquier, who helps manage more than $57 billion of real estate assets. “We saw the rents moving up, so afterward it was an execution issue.”
Construction on the building halted in 2012 and AXA plans to start building a 1 million-square foot redesigned tower known as 22 Bishopsgate later this year for completion by the end of 2018.
The Pinnacle site cost about 300 million pounds ($442 million), a person with knowledge of the matter said in February. AXA hired Lipton Rogers to develop the property, which will be designed by PLP Architecture.
“A lot of people were a bit concerned on the capacity to unwind the situation and we thought it was worth a try,” said Vaquier. “We like a bit of complexity to source the transactions.”
He’s now looking for more deals, targeting properties valued at more than 300 million euros ($318 million) and is willing to take on complex situations because the competition is lower and returns are higher, Vaquier said.
AXA also is interested in buying data centers, lodgings and health care properties because they offer higher yields than office buildings and stores, Vaquier said. It’s also considering residential investment in London and has yet to find anything attractive, he said.
Low inflation will affect AXA’s investment strategy in continental Europe because most rent increases are linked to indexes such as retail price inflation. That will limit revenue from their assets, he said.
“Price increases are about 0.5 percent, so that’s clearly something we will continue to see for the coming years,” Vaquier said.
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