LONDON-Locally based Grosvenor Fund Management (GFM) and the Toronto-based Canada Pension Plan Investment Board (CPPIB) are signing a joint venture agreement creating a $310-million partnership to invest specifically in London’s West End office market. The split will be a $295-million commitment from CPPIB and a $15.5-million contribution from GFM.
The joint venture is focusing only on value-add propositions, Grosvenor tells GlobeSt.com. “The joint venture is looking to upgrade and reposition assets through active asset management and enhancement,” notes a GFM representative. There is no single dogma for the final disposition. Once the asset is revamped into the class A strata, the partnership plans to leverage the new value to its best advantage, whether that be holding or selling for yield. CPPIB posits that the relationship is beneficial for them in that Grosvenor has a complementary platform to theirs within London, gaining them expertise in the local London market.
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Scott Rowland, commercial fund manager with Grosvesnor, tells GlobeSt.com, "The peak to trough fall in capital values from 2007 to 2009 was approximately 45%. Rents fell by 30% over the same period. Over the last few years the market has been recovering strongly but capital values and rental value are still approximately 20% below the peak."
In terms of demand, Rowland points to how "London's performance is highly leveraged to international finance markets and in turn to World trade." The recovery of global growth has led to increasing take-up rates for offices while vacancies fell. "The supply side of new offices remains constrained, following below trend delivery of space over the last five years," he adds. "Looking forward we expect this situation to continue due to the limited availability of bank finance for development projects and severe competition for office developments from residential developers."
While there are no specific properties that Grosvenor would comment on, the partnership is interested in all-comers, including class B and C, as long as the JV is confidant in its ability to gain a class A standard after the renovation. The focus, GFM states, will be on the end product.
London’s trophy properties have been in short supply, rebounding much faster than the rest of the country, however Grosvenor says their renovation plan is not a reaction to this bifurcated market. Grosvenor’s rep notes that “[GFM] believes that the specific demand supply dynamics in the London office market will result in strong rental growth going forward and this strategy is designed to exploit that growth.” The expectation, Rowland says, is that this combination of strengthening demand and tightening supply will drive rental value producing attractive returns.
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