London overtook New York as the biggest real estate exposure for Norway’s $1 trillion wealth fund in 2017.
A report from Norway’s Global Government Pension Fund — the biggest sovereign wealth fund by assets under management — shows the fund held 22.8% of its real estate portfolio in London, followed by 21.5% in New York and 19.1% in Paris.
This is a marked change from 2016, when New York was on top with 19.2%, followed by London at 17% and Paris at 13.1%.
The fund, which targets a limited number of global cities as well as logistic properties, had 218.6 billion kroner ($28 billion) invested in unlisted real estate at the end of 2017.
It made three new substantial investments in London last year along with its main UK partner, the Crown Estate, which manages the Queen’s property empire.
Overall, its London investments totalled almost £200 million.
It invested £32.3 million in 10 Piccadilly in conjunction with the Regent Street partnership, a pre-existing collaboration with the fund and the Crown. It also spent £30 million on 25% of 263–269 Oxford Street and 1-4 Princes Street, as well as buying 25% of 20 Air Street — off Regent Street — for £112 million.
“Central London office investment transactions rose 30% in 2017 despite economic uncertainty,” the fund said. “Transaction volumes ended at around £15 billion, which was a return to the average level seen in the five years prior to the Brexit vote.”
The fund — which by recent estimates is worth £760 billion — is a major investor in UK real estate, and particularly in the West End of London.
In 2016, it spent £400 million buying two major retail spaces on London’s Oxford Street.
It bought 73-89 Oxford Street — a development under construction at the time — for £276.5 million, and spent a further £124 million buying 355-361 Oxford Street.
The fund also owns parts of New Bond Street and properties on Savile Row.
Other new investments in Europe made by the fund in 2017 included the €425 million purchase of 261 Schützenstrasse in Berlin, and 6–8 boulevard Haussmann in Paris for €462 million.
The Norwegian fund said it will keep on investing for the long-term regardless of the country’s vote to leave the EU.
“We don’t know on what terms the UK will leave the (European) Union. In many ways, for us, that is not something we need to have a view on,” Karsten Kallevig, CEO of Norges Bank Real Estate Management, the property wing of the Norwegian fund, told Reuters.
“What I need to have a view on is whether London will continue to be one of most important cities in Europe. And I think it will,” Kallevig said.
Since the fund began buying property in London in 2011, it has tended to invest in the West End and Mayfair areas rather than in the City, as there is less competition for tenants, with fewer high-rise developments replacing low-rise buildings, said Kallevig.
“The supply constraint in our markets is an important factor,” he said.
DealMakerz thinks the fund’s marked shift to London real estate represents a huge vote of confidence for the capital.
Despite the doom and gloom created by Brexit, London continues to be one of the leading cities in the world for real estate investors.
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