Chinese developers continue their retreat from UK commercial property

Several major Chinese developers are set to offload more real estate in Britain to raise cash, property agents report, capitalizing on a slowly recovering market and buyers hoping for a turnaround. Data from MSCI Real Assets, compiled for Reuters, shows that Chinese developers have been net sellers for three years, shedding £1.4 billion ($1.8 billion) worth of UK real estate. This contrasts with the £12.8 billion spent by Chinese developers in Britain between 2014 and 2020.

The drive to sell is primarily due to a collapse in China’s property sector since 2021, triggered by a regulatory crackdown on debt-fueled construction, leading to a liquidity crunch. The resulting financing squeeze has impacted some of China’s largest property companies, including Country Garden and Evergrande, causing a retreat from markets like Australia and New York. Additionally, commercial property values have plummeted globally due to high borrowing costs and the post-COVID shift to home working, resulting in a drop in deal activity.

“Right now you wouldn’t be selling unless you really had to,” said Chris Gore, a veteran London property adviser at Avison Young, noting that commercial real estate prices in London have dropped by 15%-20% in the past few years. In Britain, Chinese developers’ net selling activity peaked at £1.2 billion in 2022 before dropping to £80 million in 2023, according to MSCI Real Assets data. However, 2024 has already seen £110 million in net sales as property agents report renewed buying interest.

Local and overseas inquiries, including from other parts of Asia and wealthy family offices, have been reported. Britain has regained its status as Europe’s preferred destination for property investments in 2024 after a six-year hiatus, according to a survey by real estate fund trade body INREV.

Some Chinese developers’ need for cash and the belief among some buyers that property prices in Britain may have reset faster than elsewhere could drive more deals, making the country a particular focus, according to real estate agents. For well-capitalized buyers, this presents “a very interesting opportunity,” said Rasheed Hassan, head of global cross-border investment at Savills. Market conditions are expected to improve in 2024 if the Bank of England lowers borrowing costs, aiding London sales, experts said. Britain has seen significant repricing in commercial real estate, potentially positioning it ahead of the curve for recovery.

“It just so happens that you’re likelier to find buyers in markets with higher liquidity,” such as Britain, said Ben Chow, MSCI’s head of real estate research for Asia. Data from CoStar shows that over the past two years, Chinese developers sold UK commercial property to various buyers, including those from Britain, Canada, Malaysia, and Japan.

However, completing more deals will depend on Chinese developers accepting significantly lower prices, with distressed assets likely to hit the market via receivership, leading to prolonged sales processes. For instance, the Chinese-owned 5 Churchill Place tower in east London’s Canary Wharf fell into receivership last year and was sold last month at a 60% discount, a source familiar with the deal said.

Other Chinese developers looking to exit the UK market include Country Garden, recently hit with a liquidation petition, and R&F, which is negotiating to sell the One Nine Elms London riverside project. Additionally, a Chinese-backed office development in east London’s Royal Albert Dock was sold last year to British developer David Maxwell.

“The Chinese bought that with the idea that they would fill it up with Chinese firms,” Gore said. “But that never happened.”

Source: Reuters