UK property brings global prospects for E&O

PETALING JAYA: The acquisition of Princes House in Central London byEastern & Oriental Bhd (E&O) is an ideal opportunity for the Penang developer to market its hospitality and property offerings in Malaysia to a global audience.

E&O managing director Datuk Terry Tham Ka Hon said the company was considering plans to set up E&O's first London office at Princes House, and the acquisition might bring new prospects in the form of Malaysia My Second Home residents, hotel guests or other forms of investment flows, to Penang.

“Our greater ambition for the E&O group has always been made known, that of extending E&O's presence and brand further afield, both regionally and internationally,” he told StarBiz via e-mail.

Tham says the acquisition of Princes House represents a low-risk entry into the prime Central London property sector.

Tham said E&O was fortunate to have been considered in the purchase for Princes House. “E&O was not alone in our interest to own this very prime and attractive property,” he said.

On Monday, E&O had announced that it had agreed to acquire Princes House as its first major overseas property, which is a prime freehold office-cum-retail building in Central London, for £20.25mil or about RM100.91mil.

The vendor for Princes House is the Strathclyde Pension Fund.

Tham said the purchase price was arrived at after taking into consideration the independent market valuation report by Jones Lang LaSalle.

Princes House commands a prime position on the west side of Kingsway in the heart of London's Midtown.

Constructed in the early 1920s, the Princes House is a mixed-use building comprising about 46,087 sq ft of office and retail space.

Tham had said Princes House would continue to be let for office use but it also had redevelopment potential, subject to planning permission.

“This may include E&O-branded serviced suites or residential apartments which would find a ready rental and sale market, given its proximity to the University of London, London School of Economics as well as the Inns of Court where student accommodation and legal offices are always in demand,” he said.

Princes House London

Tham also pointed out that Princes House represented a low-risk entry into the prime Central London property sector, which provided an immediate avenue for leasing to generate rental income given its established location.

The purchase will be funded by internal funds and bank borrowings.

“This is by no means a burden to the balance sheet given that office rental income from Princes House is immediately forthcoming, and the potential for future conversion has ready demand in both rental and sale markets in this part of London that sees capital appreciation consistently outperforming all United Kingdom property indices,” said Tham.

According to Tham, based on the current mixed-used office and retail profile of the building, it would be reasonable to expect a yield of around 5.5% for the West End area where Princes House is located.

The ground floor of Princes House is currently occupied by leading British fashion designer Paul Smith on a lease expiring in 2017.

The upper first to eighth floor of the building is presently vacant, as the previous owner did not renew the tenant lease due to its intention to dispose of the property.

Tham reiterated that Princes House was located in the much sought-after London borough of Westminster.

“The London property market, particularly in the prestigious boroughs of Kensington, Chelsea and Westminster, being the most expensive in that order, shows a resilience that is supported by its international appeal.”

According to London-based broker Knight Frank LLP, luxury home prices in Central London rose the most in 10 months in March 2012.

Tham said London still led the world in financial services, “and it is where international elites and celebrities flock to buy homes, where middle-class parents aspire to send their children for top-rated education, and if affordability permits, to buy a more humble base, where tourists save to holiday and experience those instantly recognisable London icons, whether it is at the steps of Big Ben or Trafalgar Square, in the British Museum or Tate Gallery, catch a musical in the West End or shopping at Harrods. The lure of London is like no other.”

He highlighted a Jones Lang LaSalle report last week, where it was noted that buyers from China, Hong Kong, Malaysia and Singapore accounted for 51% of new property purchases in Central London neighbourhoods that the broker handled, up from 47% a year ago.

“This puts E&O at a definite advantage, with our established brand recognised in Malaysia and increasingly across Asia, and our database, many of whom are repeat buyers, who fit the profile of those who would be keen to own a unit at Princes House once converted into residential apartments or serviced suites.”

According to the Jones Lang LaSalle Property Predictions 2012, the UK's gross domestic product is expected to rise 0.4% in 2012, a nascent recovery that will be led by the Central London economy due to its strong international links and its attractions as a safe haven.

The rebound in all-property capital values in the UK recorded since 2009 was supported by the office sector in Central London, which experienced appreciation of about 38%.

The recovery of the UK economy will in turn benefit commercial properties, particularly quality buildings in prime locations.

Meanwhile, Tham pointed out that the company's Seri Tanjung Pinang Phase II development in Penang was progressing on track at the stage of environmental and technical impact assessments as well as masterplan conceptualisation.

“Given that it represents the last sizeable prime tract in land-scarce George Town, and based on our very successful track record in transforming an abandoned area into what is now the vibrant community of Seri Tanjung Pinang Phase I, we are confident that future reclamation and development will attract the necessary partners and funding, from sources both locally and overseas,” he said. - The Star