AXA SA’s real estate unit is awaiting the outcome of the Brexit referendum before deciding whether to proceed with a plan to build the tallest tower approved in the City of London.
“We have not launched the project because we want to see the results of the Brexit” vote, Pierre Vaquier, chief executive officer of AXA Investment Managers – Real Assets, the Paris-based insurer’s property arm, said in an interview last week.
AXA, which has obtained permits for the 62-story office tower at 22 Bishopsgate, will have to “revisit the options” if the U.K. votes to leave the European Union on June 23, he said.
Investment in U.K. commercial real estate is falling as the Brexit referendum, rising U.S. interest rates and slower economic growth in the U.S. and China damp demand. Executives at Great Portland Estates Plc and Land Securities Group Plc have said that a Brexit would hurt the London office market.
AXA last year bought the site of the halted Pinnacle skyscraper, saying it would build a 278-meter (912-foot) tower with 1.4 million square feet (130,000 square meters) of offices, shops and restaurants. The previous owners stopped construction on the Pinnacle in 2012.
Diversification Plan
AXA Investment Managers has about 65 billion euros ($73 billion) of property assets, including buildings, real estate stocks and property loans, according to its website. Almost all of its investments are in Europe, with only 5 percent in the U.S. and less than 1 percent in Asia. Vaquier plans to increase the proportion of investments in the U.S. and Asia to a combined 15 percent within four years. If total assets under management remain constant, that would mean an increase to almost 10 billion euros [$11.3 billion] from 4 billion euros [$4.5 billion].
“You need diversification,” he said. “We have big appetite to grow both in the U.S. and Asia; that’s where you need to play the cycle and do it at the right time.”
AXA plans to add an investment unit in Asia in order to take advantage of economic growth there, possibly by acquiring a firm or a team of fund managers who can help it to buy property. AXA currently has investment platforms in Japan and Singapore, and would like to add one in China, he said. Most of AXA’s investment in the region is in Australia and Japan, and the firm will keep adding assets in those countries before turning its attention to China, according to Vaquier.
U.S. Peak
In the U.S., office-property prices have probably peaked and rents don’t have much room to rise, according to Vaquier. Even so, AXA wants to increase its investments in the country to benefit from economic growth and demand from tenants in the high-tech sector. Buildings in big cities that require renovations and other fixes are the most attractive because new properties are “too expensive,” said Vaquier.
About $14 billion of commercial real estate changed hands in New York City in the first three months, the lowest tally since the third quarter of 2014, data from Cushman & Wakefield Inc. show. Evidence is mounting that six years of record-shattering price growth for U.S. commercial real estate has reached its limit.
If the U.K. votes to leave the EU, demand for London office space will fall as businesses wait to see the impact of the decision before committing to new leases, Robert Noel, CEO of Britain’s largest real estate investment trust Land Securities Plc, said in May. That would push down rents, investment volumes and values, Toby Courtauld, CEO of developer Great Portland Estates Plc, said in May.
London landlords are planning to sell office buildings valued at more than 1.6 billion pounds after the vote, according to people with knowledge of the matter. Samsung Asset Management Co. plans to offer 30 Crown Place and AEW Europe LLP, Brookfield Property Partners LP and Hines have hired brokers to sell office properties valued at about 900 million pounds in London’s main financial district, the people said.
The Leadenhall Building, also known as the Cheesegrater, is currently the City of London’s tallest tower.
–With assistance from Jack Sidders.
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