Office take-up to plunge

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Foreign matter: London embassy ownership

first_imgThe 19th-century building at 8 Belgrave Square is home to the Syrian Embassy (pictured above), closed since 2012 after the British government expelled all Syrian diplomats in protest at chemical weapon attacks on civilians during the country’s civil war.No one knows if the Syrians will be back, yet its owner, The Grosvenor Estate, cannot do anything with the building because embassies are considered sovereign soil even if the freeholds are not owned by the country residing there.As the US government shifts the embassy axis by moving out of Mayfair to Nine Elms, Property Week investigates who now owns all the diplomatic properties in the UK, using data from LandInsight. We also discover how landlords deal with problem tenants and ask if they are more trouble than they are worth.The list of embassy owners makes for interesting reading. As well as familiar names such as The Crown Estate, The Grosvenor Estate, The Howard de Walden Estate, the Candy brothers and Hong Kong billionaire Samuel Tak Lee, it includes the president of the United Arab Emirates, a Ukrainian oligarch, an Iraqi military contractor and a Saudi sheikh. One of the reasons diplomatic properties have attracted such a diverse pool of investors is that the majority are clustered in the most expensive area of the capital: the West End. Hundreds of diplomatic flags fly in Mayfair, Belgravia, Knightsbridge and St James’s.Belgrave Square and the area near Buckingham Palace has become a hub for embassies. The square sits within The Grosvenor Estate and takes its name from one of the many titles of the Duke of Westminster, Viscount Belgrave. To this day, the Duke’s estate is still the UK’s single largest landlord of diplomatic properties, owning the freehold of 33 addresses and with countries such as Germany, Saudi Arabia, Turkey and the UAE as tenants.“Before the First World War, these properties were single-dwelling homes,” says Nigel Hughes, estate surveyor at Grosvenor Britain & Ireland. “But after the war, it became difficult for those buildings to be used as houses, as the social climate changed. That’s when embassies became interested.”Embassy heartlandThe oldest diplomatic property in London is the embassy of Austria, which has been in Belgrave Square for more than 150 years. Most of the other embassies have sprung up since the Second World War. The US, for example, constructed its former embassy, on Grosvenor Square, in the 1950s.Embassies are also “a firm fixture” of The Howard de Walden Estate, says executive property director Simon Baynham. The estate’s tenants include the embassies of China and Poland.Hughes agrees that embassies are good tenants. “Generally speaking we find that embassies abide by the terms of their leases,” he says, pointing out that most are on ground rents. “They would have paid a premium at the time and then be on a peppercorn or very low rent basis.”The likes of Grosvenor and Howard de Walden prefer tenants that occupy buildings in their entirety because most of the properties are listed, making them very difficult to alter or to break up into flats. “The question is what can you do with these wonderful, beautiful large buildings? They have an element of impracticality about them,” says Baynham.#*#*Show Fullscreen*#*#zoom inzoom outBut while landlords may be fond of embassy occupiers, many agents think the negatives of dealing with foreign countries outweigh the positives. The main issue is diplomatic immunity. As one senior agent puts it: “The problem with embassies is that you have absolutely no control. What can you do if they don’t pay? Declare war?”There is always a risk that the occupier could “hide behind the Vienna Convention and not pay their rent”, concedes Baynham, citing the fact that the 1961 convention makes the premises of a diplomatic mission inviolable and states that it cannot be entered without permission. The host country is also barred from seizing the property.This, however, never happens, says Hughes. “The only case where they do claim diplomatic immunity is on insurance,” he says, explaining that most countries claim relief from a terrorism premium on their insurance because the British state, under the Vienna Convention, is bound to secure their premises. “If they don’t abide by the leases we have to go to the Foreign Office and ask them to intervene on our behalf,” Hughes adds. “But that’s very, very rare.”Hypothetical threatThe Howard de Walden Estate has had only one major dispute in the past 20 years, says Baynham, citing an instance when a lease came to an end. “The building was very dilapidated and we struggled to make a dilapidation claim,” he recalls. “In the end, we did get support from the Foreign Office and did reach a settlement. The Foreign Office will support landlords when embassies are deliberately flouting UK laws.”Even if the law allows them to, few landlords would mount a legal challenge, says Verity Bonney, a senior associate with the real estate dispute resolution group at law firm Ashurst. “A landlord would be reluctant to embark on litigation against a sovereign state,” she says. “You might win, but if you can’t take action or claim any damages, it will be a Pyrrhic victory.”In the Syrian embassy example, Grosvenor is unlikely to seek redress. “Unless a country would surrender their lease, we wouldn’t seek to forfeit. We would much rather resolve the problem than take it away from them,” says Hughes.Issues like the one with the Syrian Embassy are rare. However, embassies can often create a headache for their owners and neighbours. In 2014, British comedian Mark Thomas held a women’s Barbie car race outside the Saudi embassy to protest against the country’s former ban on women drivers; Wikileaks founder Julian Assange’s six-year asylum in the Ecuadorian Embassy has attracted activists and a large police presence nearby; and armed police stand guard outside embassies such as Turkey’s and Egypt’s that are potential terrorist targets.“Do you want to be next to a building with a policeman armed with a machine gun?” asks Baynham. “You’re unlikely to be burgled, but it’s not a welcoming feeling.”Security was one of the factors behind the US government’s decision to move its embassy from Grosvenor Square to Nine Elms. Another factor was space. Foreign countries have been shrinking or expanding their diplomatic force.Find out more – US Embassy relocation: was it a bad deal?Canada moved out of Mayfair and consolidated its property at Canada House in Trafalgar Square in early 2015. This May, China purchased the iconic 5.4-acre Royal Mint Court site near the Tower of London to build a new embassy and office complex on a site previously designated for a £750m, 600,000 sq ft office scheme.Three of the seven buildings China occupies are on The Howard de Walden Estate. While Baynham expects the country to “dispose of one or two buildings” in the future, he says that “it’s not on their agenda to sell those buildings” yet.Countries are moving and building their own premises because they want modern office space. “They can’t create the space that they really need and want [in a listed building],” says Baynham, adding that they are looking for large plots of land to establish their new digs and are no longer wedded to the West End. “People today are much more relaxed about where they locate. The embassies are no different.”In 2015, the Netherlands, based near Hyde Park, followed the US and acquired a plot of land in Nine Elms, creating a potential new diplomatic quarter there if others also relocate.There is another incentive to move: the leaseholds are worth a fortune. Countries in financial turmoil such as Venezuela, which owns four properties in central locations, could liquidate their assets for hundreds of millions.The US raised $1bn from the sale of its properties in Grosvenor Square, including its former embassy, which Qatari Diar is turning into a luxury hotel. Other former embassies, meanwhile, are being converted back to their original residential use by the likes of Russian steel oligarch Oleg Deripaska.Unfortunately, there are no such plans for the Syrian Embassy, which could stand empty until its lease expires in 2033. It is not the only embassy that has vacated the former embassy heartland. With the US Embassy now making Nine Elms its home and the global political climate more volatile than ever, the axis is only set to shift further.Who owns what… and where?To find out who owns the 303 diplomatic properties registered to 186 different countries in the UK, Property Week cross referenced data provided by LandInsight with records from the Land Registry, Companies House and overseas territories’ registrars, court documents, planning applications and public resources.Our research reveals that 40% of the freeholds are owned by the country that occupies them, nearly half are owned by someone else and 11% have no clear owner that could be identified.The Grosvenor Estate is the single biggest freeholder, with 33 embassies. Her Majesty the Queen is second, with 14 embassies, including those of Israel, Sudan and Russia, which are managed by The Crown Estate. Embassy of the United Arab Emirates at 1-2 Grosvenor Crescent LondonNine diplomatic properties are located in Marylebone’s Portland Place as part of The Howard de Walden Estate, while the 14-acre Langham estate in Fitzrovia boasts the Embassy of the Democratic Republic of Congo and the National Tourism Office of Greece among its tenants. The estate, originally belonging to the Earl of Oxford, is owned through an offshore vehicle, Mount Eden Land, by Samuel Tak Lee, who bought it for £75m in 1994.A mile to the south, in St James’s, the diplomatic missions of Bermuda and the Cayman Islands at 6 Arlington Street are also owned by an offshore company. David Sullivan, the billionaire co-owner and chairman of West Ham United, bought the 18,000 sq ft office building, which is opposite The Ritz hotel, for £38m in an off-market deal in 2016.Meanwhile, Cadogan Estates owns four properties and The Portman Estate three. The other owners revealed by our research are lesser known in property circles — and more controversial. As is often the case with central London real estate, many buildings are owned by companies registered offshore.Not far from Portland Place, Winchester House, an office building on Old Marylebone Road, hosts the embassies of South Sudan and the Republic of Guinea, as well as the Cultural Attache of Oman. The block’s owner is Iraqi businessman Namir El Akabi, whose name appears in the Panama Papers. He bought it in 2006 for £32m.Also named in the Panama Papers is one of the richest men on the planet. Sheikh Khalifa bin Zayed bin Sultan Al Nahyan, president of the UAE and Emir of Abu Dhabi, joined the list of embassy owners in February when he bought the freehold of 3 Hans Crescent in Knightsbridge, which houses the Embassies of Ecuador and Colombia, for £100,000.The vendor, an offshore company registered in the Netherlands Antilles, bought the freehold for £441,000 in 2009. The Sheikh already owned the leasehold of five flats within the red brick-building, for which he paid collectively £15m.The same building, which for the past six years has been the shelter of WikiLeaks’ founder Julian Assange, was also home to the Defence Office of Spain. In 2014, a company belonging to Christian Candy’s CPC Group bought the former mission, converted it into a luxury five-bedroom flat and sold it to a family of Saudi investors the following year.A fellow Saudi, Sheikh Fakieh, a 93-year old billionaire whose companies supply 40% of the Kingdom of Saudi Arabia’s chicken products, is also an owner. In 2007, Fakieh bought the freehold of Cumberland House on Kensington High Street, home to the Trade Section of the Philippines.Last but not least is Ukrainian steel magnate and billionaire Victor Pinchuk, who owns the freehold to the Grand Buildings at 1-3 Strand. The former site of London’s Grand Hotel is now home to South Korea’s Cultural Centre.Interestingly, while many countries that have had a chequered diplomatic record own their properties, the Cultural Bureau of Saudi Arabia is owned by the London Diocesan Fund.center_img Advertise and apply for jobs at PW4Jobs last_img read more

Property’s yield shift coming to an end, warns bearish Nomura

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Travelodge eyes expansion with new fund

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Henderson Global Investors appoints German property head

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City of London to acquire an interest in the Walkie-Talkie

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JLL-King Sturge merger is a good deal for all

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MORNING AFTER: Standard Life’s celeb-packed POP STORES launch

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The Generation Game approach to BTR can bolster the rented sector

first_imgBut for me, renting is a tenure of choice, which I actively sought out when moving here. Private landlords have received much criticism for not providing a high-quality product or delivering consistent customer service.Thankfully, things are set to change with the intervention of the build-to-rent (BTR) sector. BTR has brought lots of new ideas, innovation and disruptors to rental housing, but I think we as a sector need to push ourselves further out of our comfort zone and be even more ambitious.Much of the British public thinks renting is something you do in your 20s and possibly into your 30s – just a temporary stop gap before home ownership. And the BTR sector’s current product is very much shaped by the traditional idea that renting is only for the young – specifically the ‘young professional’.Many developers are now focusing on and delivering to this specific demographic and it is having an impact on how we think about design, technology, services and amenities. In reality, the rental customer base is much wider than this narrow demographic, which opens up a massive opportunity for us to create genuinely balanced and mixed communities with a variety of ages, incomes, careers, backgrounds and interests.More mature rental markets in other countries prove that professionally managed rental housing has broad intergenerational appeal. In these markets some baby boomers, much like their millennial offspring, are attracted by the idea of living in a community that is well connected to public transport and has the convenience of amenities, services and onsite management and maintenance teams. A significant percentage of this generation, possibly without any dependent children at home, want an active lifestyle in a vibrant mixed community free of concerns about maintenance and do not want to move into retirement homes.Different strokesFamilies are another important part of the housing market that can sometimes be overlooked by BTR developers. Most British families aspire to own their own homes – it has become part of the national culture. But we know from our experience in other markets that many families, for a variety of reasons, find the flexibility of renting highly attractive. Source: Shutterstock/wavebreakmediaA concern about renting for many has been a perceived lack of tenure security – a particular worry when children need to remain in a specific catchment area during their school years. But there is a stable rental model with an international track record of providing high-quality communities for everyone from individuals and sharing singles through to retirees. Called multi-family, it is accepted by global institutional capital as an established asset class and it is a model that Greystar has been delivering successfully for more than 25 years.Our approach to multi-family starts with a focus on the resident experience – how we can design a community around the way residents want to live their lives and how we can manage it most effectively. A range of apartment sizes are offered, typically from studios to three-bedroom family units, all with double bedrooms and sufficient bathrooms either for sharing or for family use.We want people to feel they can live in the entire building, not just in their own apartments, so we integrate into the building design a range of resident amenity spaces that are readily accessed from any apartment. At the building’s ground level we usually include some retail or commercial space and, particularly in our larger developments, we provide a range of mixed uses in order to create an attractive place for the wider community.Many families, for a variety of reasons, find the flexibility of renting highly attractiveOur Greenford development, for example – with almost 2,000 homes, the UK’s largest purpose-designed multi-family scheme to date – features office, retail and café/restaurant space alongside community infrastructure that includes a primary school and a health centre.This is all looked after by onsite management teams that ensure the community works for everyone. In contrast to the conventional view of renting, our multi-family approach seeks to create long-term rental communities that are suitable for everyone, and where people can stay as long as they wish.Future flexibility is built into the model for our residents, as they can change apartment sizes without transaction costs as their household needs change over time. As the affordable housing required under the planning consent is fully integrated within the buildings, residents are also able to change between tenure categories as their financial circumstances change over time, while remaining in the same community and even the same apartment if they wish.It’s an exciting time to be involved in the UK’s multi-family BTR sector. Now that the simple binary attitude of renting for the young and home ownership for everyone else is changing, there are an increasing range of options that provide real benefits for residents, whatever their circumstances. Multi-family developments are at the leading edge of this new rental culture.Michela Hancock, senior development director at Greystarlast_img read more

Deutsche Bank joins City space rush

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