The £1.15 billion ($1.41 billion) buyout of the City of London's tallest tower by a Chinese investor shows the continued appetite for U.K. commercial property from Asian buyers.
The so-called "Cheesegrater" building – named for its distinctive sloping shape designed to protect views of London's historic St. Paul's Cathedral – has been sold by joint venture partners British Land and Canada's Oxford Properties to CC Land Holdings, subject to approval by the latter's shareholders.
The Hong Kong-listed Chinese development firm is controlled by its chairman, the property magnate Cheung Chung-kiu, said by local press to be the richest man in the southwestern Chinese city of Chongqing.
Construction of the Cheesegrater completed in 2014 after three years and its 46-floors are currently fully let for an average period of the next ten years, mostly to financial services firms, including Kames Capital and Aon. The building broke rental records for the City of London with prices piercing the £100 per square foot mark.
Continued interest from Asian buyers has helped to prop up the demand for London offices, after it flagged significantly in the wake of the U.K.'s vote to leave the European Union (EU) last June.
Investment volumes into London commercial property for 2016 dropped by around half versus the prior year, according to research from real estate services company Cushman & Wakefield. Other indications of a cautious market include transaction delays, fewer deals going under offer and a far higher share of potential deals not proceeding.
Offices were the sub-category most impacted by the Brexit vote, with fewer than half of the assets that were being marketed ahead of the referendum (and tracked by the analysts in their research), being sold by the end of the year. Of these monitored assets, four-fifths were in London.
Yet while transaction levels have notably slowed, the Cushman & Wakefield research suggests that London office transaction prices have stayed comparatively buoyant, slipping only around 3 percent since the referendum.
The less pronounced slide in Asian investment spend in London during 2016 than what was seen from the North American and Middle Eastern buyer base, helped to mitigate the decline.
That trend should be set to continue in 2017, according to real estate agency Knight Frank, who anticipates continued demand from Chinese and Hong-Kong capital searching for assets will be further encouraged by the prolonged weakness of sterling.
However, the recent tightening of restrictions by Chinese authorities over capital flows out of the communist country has been flagged as a concern by industry participants.
Additionally, February construction purchasing managers' index (PMI) data released on Thursday showed a renewed downturn in U.K. commercial building activity and suggests companies are starting to pull-back on fixed asset investment, Chris Williamson, Chief Business Economist at IHS Markit told CNBC via email.
Furthermore, weak sentiment as revealed in the Royal Institute of Chartered Surveyors' (RICS) fourth quarter 2016 U.K. commercial property survey, suggests much of the Brexit pain for the capital city may lie ahead.
London was the only U.K. area where occupier demand fell in the fourth quarter with an expectation that the weakness will feed through into lower rents in the next twelve months. The slowdown is expected to be concentrated in secondary properties rather than the highest value prime buildings.
The division between the capital city and the rest of the country is highlighted by the result that cites 62 percent of London-based respondents believe the market is in the early to middle stages of a downturn whereas in the rest of the country excluding London, the same proportion feel that the market is in an upturn phase.