Investing in London

BNP PARIBAS REAL ESTATE GUIDE TO
INVESTING IN LONDON
2011
ABOUT BNP PARIBAS REAL ESTATE...

BNP Paribas Real Estate is the market leader in commercial
real estate services across Europe with 662 million of gross turnover,
and 3,300 employees.*
156 million of gross operating
We manage more than
32 million sq m
in commercial real estate
across Europe
13,1 billion
of assets under management

across Europe
We valuated around
300 million of sq m
One of the market

leaders in Europe
in commercial Property
Development
35m gross turnover

in consulting
Real Estate Advisory: 66%
Building Consultancy: 23%
Occupier Services: 11%
3,900 commercial real estate
transactions completed in 2012
CONTACTS
European Investors
Andrew Cruickshank
+44 (0) 20 7388 4434
andrew.cruickshank@bnpparibas.com
Asian Investors
Mike Chadburn
+44 (0) 20 7388 4109
michael.chadburn@bnpparibas.com
Head of Central London Leasing

Dan Bayley
+44 (0) 20 7388 4444
daniel.bayley@bnpparibas.com
West End Investment

Justin James
+44 (0) 20 7338 4228
justin.james@bnpparibas.com
City Investment
Paul Henwood
+44 (0) 20 7338 4491
paul.henwood@bnpparibas.com
Property Management
Steve Harber
+44 (0) 20 7484 8170
steve.harber@bnpparibas.com
INTRODUCTION
CONTENTS
CONTENTS
4
5
6
10
12
18
20
24
26
29
30
31
Editor: Lucy Scott

Sub-editors: Lucien Howlett, Phil Petty
Art director: Nick Watts
Designer: Heather Reeves
Illustrations: Infomen
Project manager: Francois Morrow
INTRODUCTION
LONDON BY NUMBERS
FOREWORD
LONDON OVERVIEW
TOP 10 REASONS TO INVEST
INVESTOR CASE STUDIES
GUIDE TO LONDONS SUBMARKETS
INVESTOR TOOLKIT
LONDON: INVESTORS QUESTIONS
ANSWERED
NEED TO KNOW: KEY LEGAL AND
TECHNICAL TERMS
TAX CLINIC
LONDONS DEBT MARKETS:
A LENDERS VIEW
JOINT VENTURE PARTNERSHIPS
FUTURE LONDON
KEY TRANSPORT CHANGES
HOT SPOTS
Business development managers:

Niki Kyriacou: Niki.Kyriacou@ubm.com
James Orpin: James.Orpin@ubm.com
This guide was published in association
with BNP Paribas Real Estate and
Freshfields Bruckhaus Deringer
October 2011
INTRODUCTION
LONDON BY NUMBERS
LONDON BY
NUMBERS
249.1bn
The total of Londons annual economic output or gross

value added in 2010. This represented an increase of
2.7% compared to 1.5% across the UK.
75%
Three quarters of Fortune 500
Northern
Fringe
Kings Cross
Midtown
City
Holborn
Canary Wharf
Bank
Bond Street
West End
South Bank
London
Bridge
Docklands
480
London is home to more than 480 overseas

banks, more than any other city in the world.
There are more Japanese banks than in Tokyo
and more US banks than in New York. More
than half of the businesses in the FTSE 100 and
have their headquarters here.
14.7m
London continues to be a vibrant tourist

destination, attracting 14.7 million
international visitors in 2010, 3.5% more
than in 2009.
GUIDE TO INVESTING IN LONDON - OCTOBER 2011
7.83m
Londons population has grown every

year since 1998 and stood at 7.83
million at the end of 2010. The upward
trend is expected to continue until 2031.
INTRODUCTION
FOREWORD
A capital place for

investors
ondon is on the cusp of one
of the most exciting periods
in its recent history. As the
Olympic Games is set to
focus the worlds attention
on the capital, a number of
infrastructure and urban regeneration
initiatives promise to transform the real
estate market.
The UK capital has opportunities for all
investors: from those seeking core returns
to those with an appetite for risk. Their
enthusiasm is strengthened by Londons
International investment is a solid
feature of Londons property market,
maintaining its presence even in the
investors spent almost 10bn on
commercial property in 2008 and 2009.
Overseas buyers accounted for half of
all investment into central London in
that this trend will continue.
Across the capital, schemes are under
way that will present fresh opportunities
in the coming years. Two of the most
Central (where we are also developing

International Quarter at Stratford, being
developed by Lend Lease and London &
Continental Railways.
This guide outlines the opportunities
available now. We will show you where
the property investment hot spots will
be and provide information on each
area of the city, with examples of recent
activity and key property statistics.
We have also collated practical
information on navigating the technical
aspects of investing in London. We,
legal and regulatory issues in the
Investor Toolkit section, while on
page 26, the BNP Paribas Finance
Team analyses the state of the debt
market and outlines the opportunities
this offers.
are as excited by London and the
opportunities it offers as we are.
Andrew Cruickshank is senior
director of international investment
at BNP Paribas Real Estate
LONDON
OVERVIEW
TOP 10 REASONS
THE TOP 10 REASONS

TO INVEST IN LONDON
LONDONS FINANCIAL SECTOR WILL NEED SPACE
EQUIVALENT TO FOUR SHARDS OR FIVE HERON
TOWERS BY 2014
NP Paribas Real Estate estimates there will be demand

for at least 1.6m sq ft of extra space in London over
the next three years, based on responses to its London
Financial Sector S
their outlook for job growth. More than half (55%) said they
planned to increase headcount over the next three years,
leading BNP Paribas Real Estate to conclude that 11,500
An average of 3.1m sq ft of space has been transacted
ONE
6
says BNP Paribas Real Estate. This has been driven

primarily by lease expiries and M&A activity. It is a trend
we expect to continue, says Claire Higgins, head of
research for the company.
SPACE NEEDED
BY LONDONS
FINANCIAL
SECTOR BY 2014
LONDON
OVERVIEW
TOP 10 REASONS
DEMAND FOR SPACE MATCHES SUPPLY
he strongest demand for new space is likely to come from
BNP Paribas Real Estates projections. Investment management
TWO
London at 50 St Mary Axe, EC3, while in Mayfair, US hedge fund

York Capital Management signed a 7,600 sq ft letting at 23 Savile
Row, W1S, paying 97.50/sq ft.
Claire Higgins, head of research at BNP Paribas Real Estate, says:
Our research shows that these smaller companies are more positive
about growth in jobs. They will drive demand over the next few years,
requirements match the supply available.
OVERSEAS INVESTMENT CONTINUES TO DOMINATE

LONDONS PROPERTY MARKET
he diversity of Londons investment market has shielded it from the

worst effects of the downturn. Non-UK investors accounted for 60% of
the 10.3bn transacted in central London in the past 18 months. In the past
property, according to Property Data. Prime West End yields are now 4%
(see pages 13-17 for more yield data).
Overseas investment is a key source of capital for London. In 2010, Norges
of its global real estate mandate taking a stake in The Crown Estates
Association awarded ING Real Estate Investment Management a mandate to
THREE
BUSINESS CONFIDENCE IN LONDON IS AT A HIGH
FOUR
of overseas businesses in the capital is at a high. A survey

commissioned by promotional agency London & Partners found
that 90% of senior executives from overseas companies believe
that London provides a good location for their business. A total of
proximity to markets and customers was a principal reason for
their presence.
In addition, a survey by Think London reveals that 82% of
senior executives from foreign direct investment companies
believe that London provides a good environment for strong,
innovative companies.
LONDON
OVERVIEW
TOP 10 REASONS
CHANGE
ANNUAL HOUSE PRICE INFLATION FORECAST
5%
4%
3%
2%
1%
FIVE
0%
2011
2012
2013
UK
2014
2015
London
Source: BNP Paribas Real Estate
LONDONS HOUSING MARKET HAS HELD UP WELL
ondons residential market is outperforming the

rest of the UK, with average rents increasing by
almost 7% in the last 12 months. The average rent in
Greater London has been reported to have broken
buyers in Hong Kong, Singapore and Kuala Lumpur, at

an average of 1,400.00/sq ft, a record for the area. In
Londons West End, 900m of sales were completed on
time reaching 1,006 per month. In central London,

the average is closer to 2,500 per month.
House prices have also remained strong. In 2011,
Londons prime residential market recorded prices 30%
above the 2007 peak, as overseas investors chose luxury
property. United House Developments sold 51 of the 56
Debbie Taylor, director, head of land and new homes

at BNP Paribas Real Estate, says: Despite the fact
that the UK has austerity measures in place, it is seen
as a strong market and a safe place for investors to
put their cash.
LONDON RETAIL CONTINUES TO BE ROBUST
ondons retail property market has experienced a period of strong

growth, driven by a favourable exchange rate for tourists and
international retailers competing for space. Retailers from the US are
leading the international expansion. US fashion retailer Forever 21, for
full-scale entry into the UK.

Investment from China has appeared too, retailer Bosideng MAN said it
would open a store in London after buying a prime development site near
Oxford Street. It is set to open before the Olympics.
SIX
LONDON
OVERVIEW
TOP 10 REASONS
DEMAND FOR HOTELS FROM OVERSEAS REMAINS SOLID
SEVEN
London hotels increased by nearly 17%

as the capital hosted an assortment of sporting, cultural and political
events. We have seen a year-on-year increase in average room rates of more
than 14% to 112.90 from 99.00 in 2010, says BNP Paribas Real Estates
Claire Higgins. Overseas buyers have dominated the London hotel market over
the past 18 months, accounting for 70% of investment by value. Far Eastern
and European investors were the most active purchasers, she adds.
LONDON OFFERS OVERSEAS INVESTORS

AN ATTRACTIVE TAX REGIME
here is generally no UK tax on capital gains for nonUK resident investors buying property in London, even
on deals negotiated or signed in the UK. When calculating
taxable rental income, interest on a loan to a non-resident
landlord secured against the property is generally
deductible (for advice on capital gains tax, see page 24).
EIGHT
NINE
TRANSPARENCY,
WHATEVER THE CYCLE
UK legal system
and market practices means investors are able to
access accurate market information about particular
assets, as well as about the market in general. The
liquidity of the London market means that entry and exit
are always possible.
LONGER LEASES MAKE ASSET

MANAGEMENT EASIER
verage lease lengths in L

years for retail. In Asia, however, buildings tend to have shorter
leases and are multi-let. Overseas investors appreciate the fact
that buildings are often occupied by a sole tenant that is there for
the long term, making it simpler to asset manage a property from
afar, says Andrew Cruickshank, senior director of international
investment for BNP Paribas Real Estate.
TEN
LONDON
OVERVIEW
HOW WE DID IT
London may be one of the easiest markets to invest in globally, but

new buyers need to do their homework. We spoke to three overseas
investors about their top tips for success
JOINT TREASURE
INTERNATIONAL
STRAIGHT-TALKING APPROACH
Thomas Yiu, adviser at Hong Kong-based
Joint Treasure International, says successful
investment in London is about contacts,
research and having a straight-talking
We have been looking in London for three

years, but we have only bought two properties.
During that time we were learning about the city
contacts cross-checking what people told us.
We tested the market with an investment
New investors
should ensure
they establish a
strong network of
contacts
in an apartment in South Kensington. Then we

bought 10 Stratton Street in Mayfair. At 4.5%
the yield was low, but we will upgrade the
command a higher rent.
London has an attractive tax regime that is
more favourable to overseas investors than other
places. As a Hong Kong investor, it is an easy
market to understand our colonial connection
means we are familiar with the culture.
If you are new to the market, we have found
people can question whether you have the ability
to close a deal. But now we have undertaken two
deals in London, it is easier. People are taking
us more seriously and trying harder to bring
us deals. To gain respect, it is important to be a
straight shooter and not mislead people.
HONG KONG
PRIVATE INVESTOR
BUILD A CREDIBLE REPUTATION
Overseas buyers need to react fast in
Londons competitive market, says a Hong
Kong private investor that has been investing
in London since 1982.
looking for stable returns. Londons real estate
market gives us that and offers that
incremental upward recurrent income and
potential for capital appreciation.
But London also offers what other cities
dont: long institutional leases (see p20), a
friendly tax regime for foreign investors, a
10
To gain respect,
it is important to
be a straight
shooter and not
mislead people
clear and established legal framework and an

abundance of property professionals.
Today, and over the next few years, attractive
investors should consider looking where there is
less appetite, such as at assets that are capital
and management intensive.
This increased competition among overseas
buyers, combined with shorter market cycles, also
means you need to react fast and sometimes
aggressively to capture an opportunity.
New investors to London should ensure
they establish a strong network of contacts.
But they also need to build their credibility
and reputation in the market having funding
ready as well as a quick decision-making
process really helps.
LONDON
OVERVIEW
MGPA
TIMING IS KEY
Investors should look to Londons
emerging locations for opportunities,
says Julian Neave, analyst, asset and
development management at MGPA.
The private equity real estate firm has
been investing in central London offices
since 2008 and has recently focused on
developing prime offices in the City.
London is a competitive market but it
means that when you come to exit your
investment, there is a wide pool of potential
buyers. It is also one of the most transparent
markets in the world and the availability of
information means that agents and investors
tend to know when deals are coming to the
market. Investors trust the English legal
system, while the language and Londons
international culture means it is an easy
city to navigate. The Citys standing as one
of the worlds leading financial centres has
helped it to attract foreign investment during
uncertain economic times.
The City tends to have larger assets with
large floor plates, while the West End has
smaller lot sizes and floor plates, with offices
in Mayfair often being in old residential
buildings that have been renovated.
Timing is key when looking at this market.
The central London office market is liquid,
but it is also one of the most cyclical in the
world. Investors should time entry around
lease events, but also focus on buildings
that are occupier friendly.
In the past year, a lot of people have
been targeting development in central
London, but that window of opportunity
is now closing. If a project is not ready to
start imminently it will be difficult to beat
the rush of development coming in 2014.
Investment strategies should focus on
Londons new hot spots such as Farringdon
or Kings Cross.
LONDON
OVERVIEW
SUBMARKETS: WEST END
GUIDE TO LONDONS
SUBMARKETS
Whatever your investment strategy, London has something
to offer, as our overview over the following six pages shows
the west end

West End post codes: W1, SW1, W2, SW3, SW7 and W8
Most famous for: Retail. The West End is a shoppers paradise, offering everything from cheap and
chic fashion to luxury designer goods on its famous streets such as Bond Street, Oxford Street, Regent
Street and Piccadilly. Also known for its theatres and Georgian architecture.
Landmark buildings: Houses of Parliament, Buckingham Palace, The Ritz Hotel
OCCUPIER BREAKDOWN
PRIME RENTS (/SQ FT) AND YIELDS

Retail
Residential
3.50
Prime yields (%)
4.00
3.00
Secondary yields (%)
5.50
5.00
Capital value (/sq ft)
1,750
Prime rents (/sq ft)
100.00
650-900
62.00
Overseas investment (m)*
2,655
1,284
Overseas market share (%)
60
85
10%
10%
30%
10%
15%
25%
*Covers last 18 months
PRIME RENT FORECAST (/SQ FT)

Prime rents
Q4 2011
Q4 2012
Q4 2013
Q4 2014
St Jamess/Mayfair
105.00
110.00
115.00
120.00
Victoria
68.50
73.50
77.00
80.50
Soho
70.00
72.50
75.00
77.50
North Oxford Street East
62.50
65.00
67.50
70.00
North Oxford Street West
71.50
77.00
80.50
84.00
corporate
government
media
professional
other
1.8BN
120.00
TRANSACTED IN H1 2011
PER SQ FT PRIME OFFICE

RENT FORECAST IN 2014
4.3%
VACANCY RATE IS AT ITS

LOWEST SINCE 2008
3%
PRIME RETAIL
YIELDS
W2
Source: BNP Paribas Real Estate
THE WEST END: A SAFE BET
OCCUPIERS
Londons West End property market offers

investors luxury hotels and residential, good quality
The West Ends occupiers are diverse. As Londons
Property here is smaller in scale relative to other

areas if you want to spend 200m, the City may
be your best bet, but if its 20m, there are a lot of
opportunities here. Safe and robust, it has fewer
peaks and troughs than other London markets.
12
home to a wide range of retailers from Primark to

Cartier. But its also the base for a mix of hedge
funds, tech and media companies, and home to
many property companies.
W8
LONDON
OVERVIEW
SUBMARKETS: WEST END
BEST LOCATIONS TO BUY IN

Property here
is smaller scale
relative to other
areas if you want
to spend 200m,
the City market
may be your best
bet, but if its 20m,
there are a lot of
opportunities for
you here.
Established prime locations are St Jamess, Mayfair

and Berkeley Square, where prime yields are 4% for
an appetite for higher returns and interesting
opportunities, areas such as Victoria, Paddington,
north of Oxford Street, and Soho are worth a look.
W1, the 86,500 sq ft scheme near Regents Park,

paying 59.60/sq ft for a 20-year lease. Google has
signed up for an additional 37,400 sq ft at 123
Buckingham Palace Road, SW1, near Victoria
Station, while Apple has agreed to pay 72.50/sq ft
for 26,000 sq ft at 1 Hanover Street, W1.
HEALTH OF THE OCCUPIER MARKET
In 2010, it overtook Hong Kong as the worlds most

85.00/sq ft. They now stand at 100.00/sq ft.
There has also been healthy activity from TMT
(technology, media and telecommunications)
companies with 24 leasing deals generated by the
for 40,800 sq ft at 1 Curzon Street, W1, paying

75.00/sq ft for its new headquarters during the
second quarter. Lucidus snapped up 5,700 sq ft at
55 New Bond Street, W1, for 70.00/sq ft, while
Californias Platinum Equity took the last 3,200 sq
ft at 40 Bruton Street, W1, in Mayfair, paying
98.50/sq ft for a 10-year lease.
DEVELOPMENT
Lack of West End supply also explains the upward
Film effects business Double Negative prelet the

few and far between. But a handful of schemes are
being developed that will bring more space to the
market, such as Avivas 575,000 sq ft mixed-use
scheme at Mortimer Street, Fitzrovia, W1.
ORIENTATION
W1 Soho
EXAMPLE DEALS
Retail 16 Old Bond Street, W1
A 13,100 sq ft building let to Prada sold for
Marylebone
The 17,800 sq ft building was sold to CREMS for
Bond Street
Residential 30 Old Burlington St, W1

A residential developer is understood to be close
to buying 30 Old Burlington Street for 96m.
Mayfair
SW7
Westminster
SW1
SW3
Victoria
A FAVOURITE WITH
Aside from the UK institutions and European
buyers, the market is popular with Far Eastern
investors, who in the past 18 months accounted
for 25% of the overseas investment market,
followed by investors from the Middle East (22%)
and North American buyers (7%).
13
LONDON
OVERVIEW
10.5m
SUBMARKETS: DOCKLANDS
E16
TRANSACTED IN H1
2011
ORIENTATION
E14
8.6%
VACANCY RATE
Limehouse
Canary
Wharf
Canary
Wharf
City Airport
The O2
docklands
Occupier breakdown:
10% professional, 10% government, 10% other
DOCKLANDS: OPPORTUNITY KNOCKS

There are two main property markets in Docklands:
Canary Wharf and the area to the south. On the
Canary Wharf estate it is not often that properties
come to market. When they do, they are large lot
sizes usually bought by major overseas companies
rents of 37.50 to 40.00/sq ft in Canary Wharf and

25.00/sq ft in the wider Docklands area.
Residential is an emerging sector. Ballymore
Most famous for: The Canary Wharf business district,

home to some of the tallest skyscrapers in Europe.
Landmark buildings: One Canada Square, ExCel
centre and London City airport.
42.50
Q4 2012
42.50
Q4 2013
45.00
Q4 2014
46.00
Retail
Residential
5.25
5.25
6.00
6.00+
Capital Value (/sq ft)
650
37.50
375.00
40.00
343
40
OCCUPIERS
Canary Wharf is the prime area, but residential

properties in the Limehouse area, E14, could
provide interesting returns.
just 35,000 sq ft transacted during Q2 2011, largely

because the banking sector remains subdued.
Canary Wharf is a retail destination too: malls
such as Cabot Place are occupied by high-end
retailers including Tiffany and Waitrose.
Q4 2011
Prime yields (%)
Morgan planning to move there, it is a trend which

look set to continue.
PRIME RENT FORECAST

(/SQ FT)
E14 scheme for between 250,000 and 4m to

investors primarily from the Far East.
Canary Wharf is dominated by the banking and
14
Post codes: E14 and E16
Source:
BNP Paribas
Real Estate
DEVELOPMENT
The Landmark is a 500,000 sq ft luxury residential
scheme near Canary Wharf, E14 and Bellway Homes
is building the New Festival Quarter at Poplar, E14.
A FAVOURITE WITH
Middle Eastern buyers accounted for 61% of all
deals undertaken during the past 18 months.
When properties
do come to market,
they are large lot
sizes usually bought
by major overseas
companies or
consortia.
LONDON
OVERVIEW
SUBMARKETS: MIDTOWN
With a vacancy
rate of 5.2%,
Midtowns office
occupier market is
at its healthiest for
three years.
MIDTOWN: A GOOD MIX
DEVELOPMENT
Midtown is a mix of the West Ends historical

buildings and new, modern space investors might
find in the City. Deals tend to be between 20m
and 50m. Multi-tenanted buildings provide good
asset management opportunities for investors.
Rental growth and income in its office market
outperformed both the City and the West End in
2010, reports the Investment Property Databank.
The lack of quality space has encouraged more

speculative schemes to be brought forward, such
as Hines 70,000 sq ft 280 High Holborn, WC1
and Legal & Generals 56,000 sq ft scheme at 6
Agar St, WC2.
OCCUPIERS
With a vacancy rate of 5.2%, Midtowns office
occupier market is at its healthiest for three years.
Take-up reached 356,000 sq ft during the second
quarter 2011 well above the five year average
because it picked up overflow from the West End.
Significant deals include Google leasing the
remaining 160,000 sq ft for 65.00/sq ft at Central
St Giles, WC2, near Tottenham Court Road, meaning
the scheme is now fully let, and social networking
giant Facebook expanding from its 6,000 sq ft office
at 22 Ganton Street for a building more than six
times that size in Seven Dials, Covent Garden, WC2.

Prime property can be found in Covent Garden and
The Strand. For more value added opportunities,
look north of Theobalds Road and around High
Holborn. Tottenham Court Road is also set to
benefit from the large Crossrail development.
A FAVOURITE WITH
North American and Middle Eastern buyers have
been very active in the past 18 months. The first
half of 2011, 245m of the 658m transacted was
by overseas buyers.
midtown
WC1
Occupier breakdown: 50% professional, 15% corporate,

10% financial, 15% media, 10% other
Post codes: WC1, WC2

Offices
Retail
Residential
Prime yields (%)
5.00
5.00
3.50-5.00
5.50
6.00+
1,100
50.00
450.00
43.00
568
49
Centre Point
Holborn
WC2
PRIME RENT FORECAST

(/SQ FT)
Q4 2011
55.00
Q4 2012
57.00
Q4 2013
58.50
Q4 2014
60.00
Source: BNP Paribas

Real Estate
658m
5.2%
TRANSACTED DURING H1 2011
Covent
Garden
LOWEST VACANCY FOR THREE YEARS

ORIENTATION
15
LONDON
OVERVIEW
SUBMARKETS: THE CITY
THE CITY: FOR BIG PLAYERS
the city
City post codes:
EC3 insurance district; EC4 professional
Most famous for:
more funds are invested in the submarket than in the next top 10
European cities combined according to the London Development
Agency. In its latest London Financial Sector Survey, BNP Paribas Real
If you have large amounts of capital to deploy, this

area should be top of your list. While the City offers
a range of lot sizes, there are many properties
of 200,000 sq ft and over. Recent transactions of
this scale include the 288m sale of the 315,200
sq ft Aviva Tower, EC3, and the 183m sale of the
454,000 sq ft Leadenhall Triangle, EC3.
centre, with 82% of respondents citing the capital as the global leader,
Landmark buildings: The Gherkin, Tower 42, Lloyds of London, the
Heron Tower and St Pauls Cathedral.
Prime yields (%)
Retail
Residential
4.50
5.00
5.00
5.50-6.50
5.50
1,100
57.50
200.00
47.00
4,530
23
62
77
OCCUPIER BREAKDOWN
rental cycles. In December 2007, prime rents were

65.00/sq ft. Two years later, they were 43.50/sq
ft. The good news is rents have been steadily
growing since then, standing at 55.00/sq ft today.
Current supply is being absorbed, decreasing
from 11.71m sq ft in 2009 to 7.86m sq
ft in the second quarter of 2011.
The provision of retail and leisure
amenities has grown substantially in
PRIME RENT FORECAST

(/SQ FT)
10%
10%
30%
ideal for those looking for long-term income.

This market can be volatile, however. Good scope
50%
Q4 2011
57.50
Q4 2012
60.00
Q4 2013
65.00
Q4 2014
67.50
EC1
Source: BNP Paribas

Real Estate
professional
insurance
other
3.3bn
TRANSACTED DURING
H1 2011
67.50
PER SQ FT PRIME OFFICE

RENT FORECAST IN 2014
16
5%
8.7%
PRIME OFFICE YIELDS
VACANCY RATE
EC4
EC2
Tower 42
St Pauls
Bank
EC3 The
LONDON
OVERVIEW
SUBMARKETS: THE CITY
the past few years and this is principally for the
Citys employees rather than tourists. There is also
growing interest in mixed-use developments, of
which Land Securities 300,000 sq ft One New
Change, EC4, is a prime example.
There has been 3.3bn of transactions in the City
the area is ideal

for those looking for
long-term income
BNP Paribas Real Estates London Financial

Sector Survey 2011 showed that the strongest
growth in demand over the next three years will
come from those occupying space of 10,000 sq ft
who are optimistic about headcount rising.

Prime areas include EC2, EC3 and EC4, while
property in emerging areas at the fringes, such as
4.42bn for the whole of 2010, meaning

year before.
with more interesting returns.
OCCUPIERS
DEVELOPMENT
Finance is by far the most important sector to

the City, accounting for 50% of the occupier base.
But it is also dominated by professional services
There are only a small number of available

buildings capable of providing space of more
than 200,000 sq ft. So investors have targeted
development sites recently as a lack of supply over
the next three years gives them an opportunity to
insurers (10%).
have risen over the year. But overall take-up activity
Near St Pauls, 100 Cheapside, EC2, which has

13,000 sq ft of retail, has attracted strong interest
from the development market, while fund manager
MGPA and CarVal Investors are about to begin work
quarter, as banks remain nervous. Demand for

space in the City is currently being driven by lease
events such as expiry or M&A activity rather than
expansion, explains Fred Hargreaves, chairman of
central London at BNP Paribas Real Estate.
A FAVOURITE WITH
ORIENTATION
Heron Tower
e Gherkin
E1
The City has a very international mix of investors

who consider the district a safe haven for their
capital. Transaction data over the past 18 months
shows the market was popular with North
American buyers, who accounted for 46% of
overseas investment, Far Eastern buyers (22%) as
well as investors from Germany (13%).
EXAMPLE DEALS
Bow Bells House was bought for more than 140m by an
Hotel deal 10 Trinity Square, EC3

The former Port of London Authority headquarters is to be
Residential development The Heron, EC2

More than 150 of 284 apartments have sold off-plan in less
than 12 months at Heron Internationals 36-storey tower.
17
INVESTOR
TOOLKIT
Q&A
LONDON: INVESTORS
QUESTIONS ANSWERED
From buying a property to owning it, a new market can be daunting.
Andrew Cruickshank, BNP Paribas Real Estate senior director of
international investment, answers some common questions
Q1: Im thinking of buying in London. Am I too late
A: There are different types and quality of buildings
within each asset class and submarket of the city,
matching a variety of risk appetites. This diversity can
be daunting for new investors, so consult an adviser
who can work with you to formulate a strategy.
Q4: Core areas seem to

be trading at very low
yields. Are there safe investments
outside of these areas?
A: T
of security and prospects for strong rental
and capital growth. But there are secure
and long-term income deals on buildings
outside the traditional core areas
that offer marginally
higher returns.
Q2: Now Im here, how do

I access the market?
A: London is one of the most accessible
markets globally for overseas investors,
market information is plentiful and there
is a good selection of advisers to help you.
A purchaser will usually have an adviser
such as BNP Paribas Real Estate to
introduce on and off market transactions
and provide support throughout the
purchase process.
18
Q3: How do I go about deciding the best

asset class and location to invest in?
A: The prime market has recovered from the
downturn and there is strong competition
for core assets. But with good rental growth
strong investment performance over the
short to medium term is expected. Riskier
assets with higher initial yields provide
interesting opportunities.
INVESTOR
TOOLKIT
Q5: What about if

I want to invest a
small amount of
capital?
A: BNP Paribas Real Estate

regularly advises overseas
investors on transactions between
2m and 5m. The West End and
its surrounding areas offer numerous
opportunities as compared to the City,
where lot sizes are larger.
Q6: Id like to make a long-term investment

in London - is the market suitable?
A: One of the attractions of London is the long
occupational leases available. Today it is common for
buildings and these represent ideal secure investments.
Q7: Now Ive bought a building,

how do I ensure it is properly looked after?
A: Steve Harber from BNP Paribas Real Estates property
management team answers: For single let investments,
the onus is on the tenant for the majority of costs and
repairing obligations. For multi-tenanted properties, a
property manager should be appointed. Advisers such as
BNP Paribas Real Estate can also help with rent reviews,
lease renewals, refurbishment and leasing
as part of a full ownership lifecycle process.
(For more on leases, see p23).
Q8: How will income

and capital gains tax
impact my returns?
A: E
tax planning
is essential
to protect an
investment. UK
tax laws are relatively friendly towards
overseas investors (for advice on this,
turn to pages 24 and 25).
Q&A
I have a portfolio of investments already,
but Id like to invest in London real estate
Mignonne Cheng, chairman

of BNP Paribas Wealth
(left), responds: Yes. We
are one of the largest real
estate service providers in
Europe, and the only adviser to offer
advice at every stage of the property
life-cycle through six business lines:
property development, consulting,
valuation, transaction, property
management and investment
management.
Real estate is one service alongside
other investment classes offered by
relationship managers and BNP Paribas
Wealth Management has many clients
with differing levels of experience in
European markets.
Our wealth management and real
estate teams sit within the same division
of the bank and have an increasingly close
deal opportunities to clients. With the
relationship managers from corporate
coverage and wealth management, we
have created a strong track record of
working with Far and Middle Eastern
clients of the bank in the UK.
Q9: How do I crystallise increases in rental growth?

A:
years. Uplifts in rental value during the lease are
possible, although there is a risk a review wont
coincide with the best point of a rental cycle.
Some leases will specify a minimum or maximum
uplift or a rise in line with a cost of living index.
19
INVESTOR
TOOLKIT
NEED TO KNOW
NEED TO KNOW:
KEY LEGAL AND
TECHNICAL TERMS
Getting to grips with the intricacies of UK property can
David Lewis
and real estate associate Joanna Davies outline the key
information and terminology you need to know
REGISTERING PROPERTY
INTERESTS
RESTRICTIONS ON
BUYING PROPERTY
There are no restrictions on non-resident
parties investing in land in England and
Wales just one of the many features of the
property market which make it attractive to
overseas investors.
HOLDING A PROPERTY
Generally land is held freehold or leasehold.
Owning the freehold title means an investor
has a right to the land forever and will own
all the buildings on the land. A leasehold
interest is limited to a certain number of
years (the term of the lease).
20
The Land Registry records title to freehold and

some leasehold interests. Registration provides
a guarantee of the owners title to the land,
which is backed by the state. All land in England
and Wales is required to be registered. Some
land remains unregistered, but registration is
required when statutory requirements kick in,
such as a sale of the property or the grant of a
lease for more than seven years.
TYPES OF LEASE
Leasehold interests are generally either long or
occupational leases. Long leases are typically
of 999, 125 or 99 years with low or nominal
rents. Long leaseholds are similar in practical
terms to freehold, but the tenant owes some
obligations to the landlord, for example to keep
the property in good repair or to insure
it. O
15 year terms, with tenant options to break.
INVESTOR
TOOLKIT
NEED TO KNOW
THE LANDLORD AND

TENANT ACT
Under the Landlord and Tenant Act 1954, a
tenant who occupies premises to carry on a
business has a right to remain in occupation
when the lease expires and to be granted a
steps are taken by landlord and tenant at the
outset to exclude these rights. The landlord
may however be able to oppose the renewal
of the lease in certain circumstances. Where
the landlord has successfully opposed the
grant of a new tenancy on grounds that do
not involve tenant default, the tenant is
entitled to compensation.
LEASE TERMS
There is no code of lease terms implied by
law, however certain landlords subscribe
to a voluntary Lease Code which aims to
promote fairness in commercial leases.
Occupational leases are typically at full
open market rent with review cycles and
rent is usually payable quarterly in advance.
Detailed provisions regarding use, repair and
occupation will be included.
INSTITUTIONAL LEASES
Institutional leases have standard terms that
are acceptable to an institutional investor.
They are typically 10-15 years in length
and the tenant bears the full cost of repair,
reinstatement, maintenance and insurance of
the premises.
RENT ESCALATION
Leases of business premises are usually
subject to upwards-only rent reviews every
the open market rent payable at that date,
linked rents are becoming more common.
REPAIRS
The tenant is usually obliged to keep the
premises in a good state of repair throughout
the term of the lease. Where a property has
multiple tenants, the landlord is responsible
for repairing and maintaining the structure,
exterior and common parts and the tenants
usually pay a proportion of the landlords
costs through a service charge.
CONDITION OF THE PROPERTY AT

THE END OF THE LEASE TERM
When the lease expires, the tenant has to
hand the premises back in good repair. Failure
to do so generally entitles the landlord to a
right to claim damages, subject to a statutory
cap equivalent to the diminution of the value
of the landlords reversion.
Where alterations have been carried out, a
landlord can usually ask for the property to
be reinstated at the end of the lease.
21
INVESTOR
TOOLKIT
NEED TO KNOW
ASSIGNMENT OF A LEASE
AND SUBLETTING
INSURANCE
Usually the landlord insures the property
in their name to the reinstatement value
period (typically three years) and recovers
the cost from the tenant. The tenant is
liable for all repairs, except where damage
is caused by an insured risk, where the
landlord will be liable for reinstatement.
If the tenant cannot occupy the property,
rent will be suspended and if the property
cannot be reinstated, the lease will usually
be terminated.
Typically a business lease will permit

assignment or subletting of the whole, subject
to landlords consent, which may not be
unreasonably withheld. The lease will specify
the conditions subject to which consent may
be granted and/or circumstances in which
it may be refused. There may be conditions
in respect of the credit worthiness of an
assignee, for example requiring evidence of
net assets, a guarantee or rent deposit.
LIABILITIES POST-ASSIGNMENT
For leases granted on or after 1 January 1996
an assigning tenant is automatically released
from the tenant covenants in the lease.
However, the tenant is normally required to
enter into an authorised guarantee agreement
(AGA), which guarantees the performance of
the new tenant under the lease.
ENERGY PERFORMANCE
CERTIFICATES
An E
rental of a commercial building, recording
22
ADDITIONAL CONSIDERATIONS
FOR DEVELOPERS
For investors looking to develop property,
there are further matters to consider such
as rights to light, planning consents and
environmental controls.
INVESTOR
TOOLKIT
COMPARE THE MARKET
NEED TO KNOW
Want to know how our continental neighbours do it? Our concise table below answers some key
questions relating to property ownership and tenancy in the major European countries
Are there any restrictions
ENGLAND & WALES
GERMANY
FRANCE
SPAIN
ITALY
No
Some restrictions
for foreign investors
regarding share deals
Some investments
Some investments are
the central bank and/

or the public revenue
department
the Bank of Spain
Generally no restrictions
apply
requirements on
non-resident parties
holding property?
Is there a system of
registration of land?
Yes and registration

provides state guarantee
of title
Yes
Yes, and Notary

guarantees title validity
Land registration
voluntary but standard
in practice and state
guarantee of title
Yes, but no state

guarantee of title
How is property held?
Freehold or leasehold
Typically held freehold
Are lease terms implied

by law?
No. However, certain

landlords subscribe to a
voluntary Lease Code
Commercial leases
regulated by Civil Code
but parties can modify in
Commercial leases subject

to Commercial Code and
civil/long-term leases
subject to Civil Code
Parties largely free to

agree lease terms
Commercial leases
governed by Civil Code
but parties can modify in
How long are leases

granted for?
Long leases typically

999, 125 or 99 years
with low or nominal
rents and occupational
leases commonly 5-15
years (with tenant
options to break)
Freely negotiable lease

terms commonly 5-10
years
Commercial leases
provide for a minimum
term of 9 years with
tenant right (and limited
landlord rights) to
terminate at end of each
3-year period
Initial term of 3-5 years

common for individual
Minimum term is 6 years

(9 for hotels)
Tenant of business
premises has right to
remain for new term
up to 15 years, unless
excluded by landlord
and tenant at outset
No right to renew unless

contractually agreed
but tenant often has
contractual right to
extend lease once or
twice for another period
of 5 years
What rights are there for

the tenant at the end of
the lease?
Landlord can oppose

renewal in certain
circumstances; tenant
may be entitled to
compensation
What are typical
provisions for rent and
rent review?
Open market rent

common for occupational
leases or peppercorn rent
for long leases (granted
at a premium)
Business leases usually
subject to upwards-only
rent review (to open
years
Are there restrictions

on subletting and
assigning?
Assigning and subletting

usually permitted subject
to landlord consent
(not to be unreasonably
withheld)
Tenant may be required
to enter into an
authorised guarantee
agreement guaranteeing
performance of new
tenant after assignment
Tenant is entitled to
renew lease for term of
at least 9 years if certain
conditions are met
and if landlord refuses,
tenant is entitled to
compensation
10-15 years for complete

building
No statutory right to
renew
Commercial leases are

automatically renewed
for an additional 6
years unless 12 months
notice is given by either
landlord (on very limited
grounds) or tenant
On expiry of any further
period, landlord can
terminate without
restriction on giving 12
months written notice
If term is 10 years or
more, rent usually
linked to consumer price
index but some leases
increases
sometimes combined
with variable rent
sometimes combined
with turnover
Annual indexation.
3-year review subject to
Annual indexation, based

on consumer price index,
common plus market
review every 3, 5 or
7 years in long-term
leases
Subletting and
assignment generally
prohibited but landlord
cannot prohibit transfer
of lease to a successor
of tenants ongoing
business
Unless otherwise agreed,

tenant can sublet or
assign without landlord
approval on giving
notice, however Landlord
can increase rent by
1020%
Original tenant usually

remains liable for
remainder of term
Original tenant liability

survives subletting but
only survives assignment
where agreed in original
lease
Review cannot be
upwards-only. Open
market rent review
increasingly common
Written consent of
landlord for subletting
and transferring usually
required
After assignment, tenant
usually remains liable
for claims relating to
time in which it used the
building
Rent and increases may

be agreed at outset and
no revision allowed
before termination of
lease, which for leases
of 6 years may be may
be up to 75% of variation
of consumer price index
and for leases of more
than 6 years, up to 100%
Consent of landlord
generally required,
unless business carried
out in property is also
transferred
Tenant remains liable
on assignment unless
liability expressly
transferred to assignee
with landlords consent
23
INVESTOR
TOOLKIT
TAX CLINIC
TAX CLINIC
The UK tax regime offers many attractive
exemptions to non-resident investors,
place capital. But it is important to fully
understand the rules and regulations.
Colin Hargreaves and tax associate
Alan Rafferty outline the key issues
TAX ON RENTAL INCOME

Rent from UK land is subject to UK tax. UK
companies pay corporation tax on income, but
non-resident investors (whether companies or
individuals) normally pay income tax instead.
In calculating the amount of rental income for
tax, interest is deductible if the borrowing is
incurred direct at the property owner level,
subject to thin capitalisation and transfer
pricing tests and to anti-avoidance rules. Any
other regular outgoings directly related to the
building will also generally be deductible.
Depreciation of capital assets in a taxpayers
accounts is not allowable for tax. Instead, a kind of
tax substitute for depreciation, called capital
allowances, is given at prescribed rates (regardless
24
of actual accounting treatment) for expenditure on

plant and machinery. When buying a building it is
important to agree with the seller how much of
the purchase price should be allocated to the
plant and machinery in the building, especially as
the tax rules mean that the buyer and seller will
usually have diametrically opposed objectives in
the allocation.
Partnerships and non-UK unit trust schemes are
usually transparent for UK income tax purposes,
meaning that no tax is payable by those entities
themselves, but rather their income is treated for
tax as income of their owners, ie the partners or
unit holders as the case may be.
Payments of rent from UK land to nonresident landowners are subject to UK
withholding tax unless HM Revenue & Customs
Provided land
is owned as an
investment and not
trading as stock,
a non-resident
investor will enjoy
tax-free treatment
Colin Hargreaves, partner

Tel: 020 7832 7352
INVESTOR
TOOLKIT
TAX CLINIC
(HMRC) has approved gross payment in any
particular case. HMRC normally approves gross
payment unless it has reason to think the
non-resident investor will not submit UK tax
returns and pay UK income tax on the net
rental income in accordance with UK tax law.
TRANSFER TAXES
Transactions in UK commercial property are
subject to stamp duty land tax (SDLT) at rates of
up to 4%, charged by reference to the purchase
price. The 4% rate applies to transactions above
500,000. Residential property purchases over
1m are subject to 5%. SDLT is a liability of the
buyer, not the seller.
UK property is often offered for sale in an
offshore unit trust wrapper. The popularity in
the UK real estate market of offshore property
unit trusts (typically Jersey JPUTs or Guernsey
can be bought and sold free of the duty. Also,
JPUTs and GPUTs are typically transparent for
UK income tax purposes, which makes them
attractive to UK exempt institutional investors
(eg pension funds).
Partnerships, by contrast, are unattractive in
SDLT terms, because the purchase of a
partnership share attracts SDLT by reference to
any UK land the partnership owns.
TAX ON EXIT PROFIT

The UK does not generally tax non-UK resident
investors on capital gains, even where the gains
arise on the sale of UK assets and/or as a result
of deals negotiated or signed in the UK. So,
provided land is owned as an investment and
not as trading stock, a non-resident investor will
This highlights the need for non-UK investors
to avoid using UK resident companies as
vehicles through which to invest in UK land,
as such companies will result in an unnecessary
layer of tax on capital gains.
It is also important to distinguish between
trading and investment in land. Non-UK
residents are generally liable for UK tax on
a trading nature.
Tax litigation over the trading/investment
borderline is almost as old and as endless as
UK income tax itself, but often the position is
relatively clear. Buying an asset such as a fully
The popularity in
the UK real estate
market of offshore
property unit trusts
is due to their SDLT
income stream which exceeds the investors

cost of funds, to hold for several years, would be
an investment transaction. By contrast, buying
a plot of vacant building land which is not
currently generating any income, with the aim
market movements and/or to the addition of
value through planning permission or
development work, would be a trading venture.
VALUE ADDED TAX (VAT)

In the UK, the letting of commercial property is
normally with many exceptions exempt
from VAT, unless the landowner has opted to
tax its interest in the building. In practice, a
landlord nearly always opts to tax, meaning
that VAT is charged on the rent, because that
way the landlord is entitled to credit for VAT
borne on its costs.
The main reason why a purchaser usually
opts to tax is the VAT treatment of the purchase.
The sale of an income-producing building may
qualify as a transfer of a going concern (TOGC),
which means no VAT is charged on it. But the
law provides that, where the seller has opted to
tax, TOGC treatment cannot apply unless the
purchaser has also opted to tax.
Different VAT rules apply where the property
is in a wrapper such as a unit trust, and the
investor buys the wrapper.
BUSINESS RATES
UK local authorities collect a local tax known as
business rates. This is generally charged to the
occupier, and the cost will be placed on the
tenant under standard lease terms. It is not,
therefore, a problem for landlords except in
cases where premises become empty.
25
INVESTOR
TOOLKIT
DEBT MARKETS
LONDON'S DEBT MARKETS:

A LENDER'S VIEW
European banker Peter Denton recently moved to BNP
Paribas, signalling the start of a major push into UK property lending by
the French bank. Over the next three pages, he talks about his plans and
outlines his projections for L
disagree with the mantra that there is no debt

out there. If you are doing business in London
at BNP Paribas.
This sounds like an implausible statement,
given the statistics surrounding the availability
Banks are looking

to invest in
reasonably safe
investments and
assets that provide
the best returns
new role, Denton who has held senior roles at

Barclays Capital, Eurohypo and Deutsche Bank
and built a reputation as one of Europes leading
Peter Denton: A fresh loan book and mandate for

lending to real estate in the UK
26
the UK with a fresh book and mandate.

BNP Paribas, which has a sizeable
European property loan book, is keen to
exploit the inability of other lenders to
undertake new business.
De Montfort Universitys latest UK
Commercial Property Lending Report reveals
that the number of large lenders to property
halved during 2010, with 80% of new lending
undertaken by just 12 organisations.
This unique moment in the market,
combined with BNP Paribass size and record
in European property lending and the expertise
of the real estate business itself, has led some
to predict that it will build a multi-billion
pound loan book in the UK.
Aside from sensing an opening in the market,
its growth strategy is based on building on its
BNP PARIBAS
AT A GLANCE:
BNP PARIBAS HAS HAD A
PRESENCE IN THE UK FOR
140 YEARS
LONDON IS THE BANKS
SECOND GLOBAL
HEADQUARTERS
THE GROUP HAS A TOTAL
WORKFORCE OF 8,500 IN
THE UK, INCLUDING ITS
SUBSIDIARIES
IT IS ONE OF THE WORLDS
SIX STRONGEST BANKS,
ACCORDING TO STANDARD
& POORS
IT IS THE WORLDS 11TH
BIGGEST COMPANY
(FORBES 2011)
THE BANK HAD REVENUES
OF 43.9BN IN 2010
INVESTOR
TOOLKIT
DEBT MARKETS
DENTON ON THE LONDON

DEBT MARKET
roadly speaking, it is not as easy to get
it shouldnt be easy; getting a multiLenders in the UK are very focused on

London today, so there isnt a great
imbalance of supply and demand there.
With limited amounts of capital, banks
are looking to invest in reasonably safe
investments and assets that provide the
best returns. There are more of those
types of opportunities in London.
Recent investment activity has been
almost totally focused on London, so banks
have followed suit. There are concerns
over the strength of some regional cities,
in particular the impact government cuts
will have on occupier markets.
Assets in regional markets are also
capabilities as a leading European lender.

BNP Paribas is already mandated on arranging
a number of larger-scale club transactions in the
UK, an approach that Denton sees as sensible
while the market remains uncertain, and plans to
take the leadership role in other club deals.
When the markets become clearer, Denton sees
BNP Paribas also taking on the role of
underwriter in its property lending.
As well as balance-sheet debt, Denton will
work with UK companies seeking to invest
abroad and bring together other services the
bank provides, such as derivatives, debt/equity
capital markets advice and BNP Paribas Real
Estates platform, giving borrowers access to a
diversity of products.
To that end, Denton hopes to be able to work
including its wealth management teams, to
enable clients from the region to access
as banks are unwilling to get involved

in situations where the property was
overvalued at the height of the boom.
Europes new banking crisis could have
an impact on the increasing levels of
liquidity we have seen appearing over
the past 12 months, but currently, for
deals of a reasonable size, there is good
liquidity for loans up to 60m and club
loans up to 500m.
and high-end residential are becoming

tighter.
We want a varied
exposure, a
large proportion
lent against
good investment
property
those that have good relationships with

banks can still get decent terms, because
relationships do still matter to banks.
likely to go up but the costs of funding
for banks are also high.
27
INVESTOR
TOOLKIT
DEBT MARKETS
PROJECT ISOBEL
he latest De Montfort survey of the UK

real estate debt market showed that
77% of the organisations it surveyed in
2010 had reduced their loan book during
surprised anyone with a passing interest

in the lending market today.
A number of institutions have publicly
stated their intention to reduce their loan
books, of which Lloyds Banking Group and
The Royal Bank of Scotland (RBS) are the
reduction target of at least 50bn over
Undoubtedly it could be a slow process.
But there is one potential solution on
the horizon that could allow banks to
deleverage unwanted loans more quickly.
All of those banks with loan
reduction targets will watch
Project Isobel closely
opportunities in the UK, particularly London.

of capital to the UK market: It isnt that our
balance sheet is unlimited, he says. But as long
as we are doing good business, it is unlikely we
will have material issues with exposure levels for
the foreseeable future.
However, the basic parameters of what BNP
Paribas offers in its non-recourse business are
logistics and distribution and mostly at
maximum loan-to-value ratios around 60-65%,
though the bank can go up to 70%, he adds.
While Denton is keen to build a strong loan
book in London, he says the bank is not wholly
focused on lending on bond-like prime property.
Prime lending can be expensive and volatile.
We are seeking to build a balanced book.
I dont think we will do extreme secondary
property, but we want a varied exposure a large
proportion lent against good investment property,
a bit of speculative development, a bit of prelet,
and some assets with real leasing or
refurbishment risks in different sectors, he says.
28
Project Isobel is an innovative structure

created by RBS to enable a 1.6bn
property loan sale and as this guide went
signing off a deal with Blackstone. The
idea is that RBS will transfer the loans
into a fund, which will be managed by the
Prime lending can

be expensive and
volatile. We are
seeking to build a
balanced book
bank to take less of a writedown on loans

and spread those writedowns over a
longer period.
If successful, Project Isobel could provide
a template for other banks seeking to
reduce their property exposure, allowing
them to sell multiple loans at once, rather
than tackling positions individually. All of
those banks with loan reduction targets
will be watching Project Isobel closely to
see if it is a model they are able to follow,
says Denton.
INVESTOR
TOOLKIT
JOINT VENTURE PARTNERSHIPS
JOINT VENTURE
PARTNERSHIPS
Joint ventures are a good way for investors
to get a foothold in the London market
hile the idea of one property company

teaming up with another isnt new, it is
becoming
While theaidea
common
of onefeature
propertyofcompany
the London
teaming
market today.
up with another isnt a new concept, or
one that has been brought about by the
competition
downturn, it for
is one
thethat
bestisassets
becoming
is strong,
a more
while
for
common
those already
feature of
established,
the Londonlack
market
of debt
today.
means
that
Joint
moving
ventures
forward
partnerships
requires are
innovation
proving and
useful
tools
imaginative
for navigating
ways ofthe
working
challenges
with the
that
assets
a and
capital
competitive
they market
already like
have.
London presents to both
local
Jointand
venture
overseas
partnerships
investors.are therefore proving
useful for navigating these challenges.
For overseas
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to develop the 'Walkie-Talkie' tower; British Land
and Canadas Oxford Properties to develop the
'Cheesegrater' skyscraper; and MGPAs joint
venture with CarVal Investors and Quadrant to
near Moorgate.
says Henwood. The partnerships are usually
secured because the landowner has gone out to
normal investment market, he says.
Investors seeking partners on their prime
projects also want more than simply cash on
the table, explains Paul Brundage, executive vice
president, senior managing director Europe at
Oxford Properties: The days of being a passive
partner who makes an initial investment and then
waits for the proceeds are long gone.
Paul Clark, director of investment and asset
management at The Crown Estate whose other
partners include Healthcare of Ontario Pension Plan
and Land Securities says a blue-chip investor that
has corporate stability and a long-term interest in
the project is just as important as equity. We want
the best financial deal for The Crown Estate, but of
equal importance is finding the right partner and
having the right structure, he says.
So be prepared to take on risk, roll your sleeves up
and dedicate time and resources to fully engage with
joint venture partner you need to invest early in the

project and take on that risk, says Brundage.
But as Emma Kendall, real estate partner at
around an existing asset is easier, but with
development there is a lot more to discuss such
can force the sale which inevitably has become
Investors seeking
partners also want
more than simply
cash on the table
Once that is all in place, the hard work begins,

says Brundage: It is crucial that you put people
on the ground to manage and develop the
partnership. You need to do that if you want
a joint venture to be effective.
29
FUTURE
LONDON
DOCKLANDS LIGHT RAILWAY (DLR)
An upgrade of the light rail network will

enable a 50% rise in capacity. An extension
from Stratford to Canning Town will be
completed by 2011, while work on other
potential extensions and/or capacity
increases is likely to continue until 2020.
ro
s
sC
journey times from Kent to Londons St Pancras Station. The

line includes Stratford, which may be served by international
Eurostar services after the 2012 Olympic Games. Completion is
expected by 2020.
OVERGROUND AND UNDERGROUND

OVERGROUND: A rail network enhancement programme includes
new inner London orbital services and longer trains by 2012. Will
put 30% of Londoners within a 15-minute walk of a station.
TUBE STATION RELIEF SCHEMES: Congestion relief schemes are
planned for Victoria, Tottenham Court Road, Bond Street, Bank and
Paddington, with an overall completion date of 2020.
JUBILEE LINE: An upgrade will increase the lines capacity by 33%,
allowing for an additional 12,500 passengers an hour by 2012.
NORTHERN LINE: Transport for London is consulting over plans
to extend the line from Kennington to Nine Elms, (see page 32) in
south London by 2017, to support regeneration of the area around
Battersea Power Station and ease pressure on services at Vauxhall.
ha
rf
W
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ra
tfo
rd
South Bank
Docklands
Ca
na
ry
l
te
ch
ap
e
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m
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tt
en
Bo
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Li
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n
ng
West End
ve
rp
o
ol
St
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rr
in
gd
on
Ki
n
City
Midtown
HIGH SPEED 1
30
Northern
Fringe
Pa
dd
i
The recently released London Plan sets out

far-reaching changes to the citys transport
network. The aim is to support developments
that generate high footfall at locations with
good public transport access, and to improve
interchanges to increase connectivity.
This vision is imperative as London prepares
to host the 2012 Olympic Games, which is
being used to drive the pace of regeneration.
Stratford will gain hugely from these
improvements, as will the city as a whole,
says Fred Hargreaves, chairman of central
London at BNP Paribas Real Estate.
Here are some of the key changes:
A number of major infrastructure initiatives

are set to overhaul London's increasingly
congested and tired transport system
CROSSRAIL
This 16bn project is set to create a high
frequency, convenient and accessible rail
route through London and the South East.
When the service fully opens, around 2018,
Crossrail trains will travel from Maidenhead
Abbey Wood in the east, through new twin
tunnels under central London, stopping at
seven central locations.
The line will pass through the West End,
City and Canary Wharf. New stations will be
built at Paddington, Bond Street, Tottenham
Court Road, Farringdon, Liverpool Street,
Whitechapel and Canary Wharf.
Crossrail will also reduce crowding on
Londons transport network, helped by
trains that can carry more than 1,500
passengers each during peak periods.
Crossrail is Londons most important
transport initiative and will revolutionise
commuting, increasing the capitals rail
capacity by 10%, says Hargreaves. Today,
people have to alight at mainline stations
and get on the congested tube into central
London. In future, they will travel to seven
central stations, walking from there to work.
FUTURE
LONDON
HOT SPOTS
London is alive with regeneration schemes and transport projects.

BNP Paribas Real Estate highlights its top 10 emerging trends
KING'S CROSS: OFFICE
DESTINATION OF CHOICE
It was once an area that resisted
an industrial wasteland and crime. But a
2bn regeneration project the largest
redevelopment in central London for 150
2020 that it will even have its own postcode.

Kings Cross Central at 'N1C' is fast
occupiers, from universities, boutique hotel
Above: BNP Paribas Real Estate has picked King's
Meanwhile, the 2,000 homes being built will

provide space for a new residential district.
But it isnt just this 67-acre development
that will change the face of the Kings Cross
area. BNP Paribas Real Estate has chosen the
THE FUTURE
building at the southern end of Kings Cross
8M SQ FT OF MIXED-USE
SPACE AT KINGS CROSS
CENTRAL
2,000 NEW HOMES
and 11,000 sq ft of retail.

Henderson Global Investors is funding
Regent Quarter, a mixed-use scheme next
to Kings Cross Station. While to the west,
British Lands 13-acre Regent's Place an
HIGH-SPEED LINKS TO PARIS
completion.
What makes this area all the more promising
is its excellent transport links, which offer
cross-London services on the tube and
connection to the national rail network, as well
a high-speed train link to Paris. In time for the
Olympics, 400m will have been invested in
upgrading and improving access to services on
the Underground, the new Thameslink station
and domestic and international services at the
adjoining St Pancras International station.
31
FUTURE
LONDON
HOT SPOTS
Above: Nine Elms - one of

central London's biggest
regeneration areas
Above: The International Quarter

at Stratford will create a 1.3bn
THE FUTURE
THE FUTURE
1.3BN NEW OFFICE DISTRICT
16,000 NEW HOMES TO BE BUILT BY 2026
HIGH-SPEED LINKS TO INTERNATIONAL AIRPORTS
NEW DIPLOMATIC QUARTER
STRATFORD: OLYMPICS LEGACY
REGENERATION SOUTH OF THE RIVER
The eyes of the world will be on Londons

Stratford as it provides the stage for the 2012
Olympic Games and Paralympic Games. But
major regeneration projects under way in the
area mean Stratford will be a destination
in its own right long after the athletes
have departed.
W
Stratford City, a 4m sq ft
regeneration project one of the largest
urban regeneration projects ever undertaken
in the UK will turn Stratford into a new
metropolitan centre with shopping and
entertainment districts as well as space for
large national and international businesses.
But signalling the next phase of the areas
development is The International Quarter at
Stratford City (E
being developed in partnership with Lend
Lease and London & Continental Railways.
The scheme, which will start on site in
The many developments in and around the

350-acre Nine Elms area, south of the river
near Vauxhall, have the potential to create
16,000 homes and space for 25,000 workers.
Irish developer Ballymore has put in an
application for a 15-acre redevelopment
around the site where the new US Embassy
building is being developed in SW5. And the
Covent Garden Market Authority is selling a
57-acre Covent Garden market site for a
mixed-use redevelopment. Two parties are
bidding to buy the site.
space, which could provide workspace for

15,000 workers.
Joining the dots will be new transport
infrastructure connecting Stratford Regional
Station and Stratford International across
the city and to international airports at
Heathrow and Gatwick.
32
THE FUTURE
NEW WEST END OFFICE
DESTINATION
CROSSRAIL STATION BY 2018
PADDINGTON: RIVAL TO TRADITIONAL WEST END

Just 15 minutes from Heathrow Airport, Paddington could provide an
alternative to the traditional West End market.
The district is reported to be on retail group Arcadias list for its
new 130,000 sq ft West End headquarters and, if it chooses the area,
it will join Marks & Spencer, which leased a 170,000 sq ft building at
Merchant Square, W2, in 2008. Mining group Rio Tinto has also signed
up for 26,000 sq ft at Two Kingdom Street, Paddington Central, W2.
Also in W2, Zog Group bought North Wharf G
Paddington Basin masterplan site to be sold for redevelopment. It has
Royal Mail is also vying to create a 270,000 sq ft mixed-used scheme
next to Paddington station, while the Reuben brothers have consent to
build a 460ft residential tower, dubbed 'the Cucumber'.
FUTURE
LONDON
THE FUTURE
HOT SPOTS
INCREASE IN PRIME
RESIDENTIAL
DEVELOPMENT
MAJOR DEVELOPMENT
OF NEW GRADE A
OFFICE SPACE
STRATEGIC LOCATION
There is likely to be an increase in the
creation of prime residential schemes in areas
on the fringe of the City and just outside the
border in boroughs such as Tower Hamlets.
At the Barbican, Heron International has built
the 284-apartment Heron scheme, for which
prices have reached 4,500/sq ft.
But it isnt just about residential. Prime
Minister David Cameron has already stated
his wish for Shoreditch to become a
tech city and the area is a strategic
priority for the London Mayor. If all
consented development and pre-application
development proceeded in the City fringe
as planned, it would create 68,000 jobs
Above: 140 trains an hour will be channelled through Farringdon
DESTINATION FARRINGDON
THE FUTURE
By 2018, Crossrail will channel 140 trains an

hour to the Farringdon interchange and create
one of Britains busiest train stations.
But Crossrail says the station will be so
integral to London that Farringdon will
re-emerge as a destination in its own right.
Investors seem inclined to agree and have been
banking sites in expectation of uplifts in value.
Global fund manager LaSalle recently bought
BRITAINS BUSIEST RAILWAY

STATION
140 TRAINS AN HOUR
Road and is refurbishing 2 Pear Tree Court

The area is also gaining interest from an
increasing number of retailers (see overleaf).
complex on Farringdon Street.
SHARD POINTS THE WAY

A new London icon is rising from the
ground in South Bank. The Shard,
which will be the tallest building in Europe
when it is completed in 2012, will transform
the London skyline into a vertical city of
THE FUTURE
HOME TO EUROPES
TALLEST BUILDING
FIVE-STAR HOTEL
OFFICE RENTS AT
55.OO/SQ FT
will be able to command rents of 55.00/sq ft unprecedented in SE1.

However, South Bank is undergoing a wider facelift, as recently
Above: The Shard could

command rents of 55.00/sq ft
Transport links will be strengthened by the redevelopment of London

Bridge Station a project that includes a new bus station, increased
platforms, more trains and destinations and a concourse bigger than
the pitch at Wembley Stadium.
Bank grew by 157% in 2010, while vacancy rates have dropped to 4.7%.
33
FUTURE
LONDON
PROSPECTS
RETAIL GETS OVER THE WEST END
THE FUTURE
Luxury brands are

considering alternative
locations to Bond Street,
such as up and coming
Shoreditch, with brands like
Parisian shoe designer
Christian Louboutin having
expressed interest recently and Hermes who opened a
pop-up store there last year.
One New Change in the City of London (see above) proves that
retailers don't have to be in the West End to be successful.
The scheme is a 300,000 sq ft development including brands such as
Hugo Boss and Links of London. It was developed by Land Securities
as a new shopping destination, open seven days a week, in the heart
of the City. It is playing a lead part in transforming the City into a
retail hub.
This development offers a fresh perspective on life in the City of
London and plays a vital role in restoring Cheapside to its rightful
place on the retail map, says Colette O'Shea, head of development,
London Portfolio for Land Securities.
Image: Jestico + Whiles
PRIME WEST END

RESIDENTIAL TO SOAR
HOTELS BRANCH OUT

London Bridge, a W hotel (see above) at
Leicester Square and Singapores KOP
Properties 120-room luxury hotel in Tower
Hill on the east of the City of London signal
that high-end hotels appear to be branching
out into areas not previously considered. We
forecast a new trend for top quality hotels in
more uncharacteristic locations.
THE FUTURE
11,500 JOBS CREATED BY
FINANCIAL OCCUPIERS
FOUR SHARDS WORTH
OF SPACE IN THE NEXT
THREE YEARS
EXTRA DEMAND OF 1.6M SQ FT

Even despite the recent turmoil in the
PRIME RESIDENTIAL OFFERS OPPORTUNITIES

While residential in Mayfair and St Jamess has always been an
attractive investment opportunity, BNP Paribas Real Estate believes
there are still opportunities in this area of the West End submarket
for overseas investors.
Prime London residential values show no signs of slowing down
and are showing the highest returns, so there is little reason why
this area of the market will not continue to attract investors, says
Debbie Taylor, head of new homes at BNP Paribas Real Estate.
there has still been an average of 3.1m sq

each year by this sector.
Results of BNP Paribas Real Estates
Financial Sector Survey 2011 also suggest
that it is realistic to expect another 11,500
next three years.
We estimate that this could translate
into demand for at least 1.6m sq ft of extra
space. This means the equivalent of four
Real Estate reports.
34
INVESTING THE GREEN POUND

Sustainability will become part of the
THE FUTURE:
THE BEST OCCUPIERS WILL
ONLY WANT GREEN BUILDINGS
LEGISLATION WILL PUT FOCUS
ON SUSTAINABILITY
THE VALUE OF GREENER
BUILDINGS WILL INCREASE
attract the best occupiers, will avoid future

tax legislation and will increase in value.
Investors will be able to pick buildings that
do not, says BNP Paribas Real Estate
property management director Steve Harber.
Image: Singaporean in London
LUXURY RETAIL AND

HOTEL BRANDS ON
THE MOVE
CHANGING THE GAME

FOR INTERNATIONAL
INVESTORS
The investment game is all about the right

connections. With an experienced team, a
strong track record in Europe and dedicated
platforms in Asia, the Middle East and North
America, were your route to investing in London.
Talk to our game changers
for international investment at:
realestateforachangingworld.co.uk
www.realestate.bnpparibas.com
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THE TOP 10
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INVESTING GUIDES:
Practical guides that give
you everything you need to
know about investing
in Europe.
Our investing guides explain the
top 10 reasons to invest in Paris,
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real estate market, the key legal
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investment case studies and much
more.

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BNP PARIBAS REAL ESTATE GUIDE TO

ABOUT BNP PARIBAS REAL ESTATE...

We manage more than

of assets under management

One of the market

35m gross turnover

3,900 commercial real estate

transactions completed in 2012

Head of Central London Leasing

West End Investment

Editor: Lucy Scott

Business development managers:

The total of Londons annual economic output or gross

Three quarters of Fortune 500

London is home to more than 480 overseas

London continues to be a vibrant tourist

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

Londons population has grown every

A capital place for

Central (where we are also developing

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

THE TOP 10 REASONS

NP Paribas Real Estate estimates there will be demand

says BNP Paribas Real Estate. This has been driven

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

DEMAND FOR SPACE MATCHES SUPPLY

he strongest demand for new space is likely to come from

BNP Paribas Real Estates projections. Investment management

London at 50 St Mary Axe, EC3, while in Mayfair, US hedge fund

OVERSEAS INVESTMENT CONTINUES TO DOMINATE

he diversity of Londons investment market has shielded it from the

BUSINESS CONFIDENCE IN LONDON IS AT A HIGH

of overseas businesses in the capital is at a high. A survey

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

ANNUAL HOUSE PRICE INFLATION FORECAST

LONDONS HOUSING MARKET HAS HELD UP WELL

ondons residential market is outperforming the

buyers in Hong Kong, Singapore and Kuala Lumpur, at

time reaching 1,006 per month. In central London,

Debbie Taylor, director, head of land and new homes

LONDON RETAIL CONTINUES TO BE ROBUST

ondons retail property market has experienced a period of strong

full-scale entry into the UK.

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

DEMAND FOR HOTELS FROM OVERSEAS REMAINS SOLID

London hotels increased by nearly 17%

LONDON OFFERS OVERSEAS INVESTORS

LONGER LEASES MAKE ASSET

verage lease lengths in L

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

London may be one of the easiest markets to invest in globally, but

We have been looking in London for three

in an apartment in South Kensington. Then we

GUIDE TO INVESTING IN LONDON - OCTOBER 2011

clear and established legal framework and an

the west end

PRIME RENTS (/SQ FT) AND YIELDS

Prime yields (%)

Secondary yields (%)

Capital value (/sq ft)

Prime rents (/sq ft)

Overseas investment (m)*

Overseas market share (%)

*Covers last 18 months