Canadian investments into the UK property market

Canadians raising ’s skyline Investors from Canada have long been influential in shaping the UK real estate market. Perhaps one of the best-known examples is the development of in London. In the 1980s it was a Canadian, and his company Olympia and York, that Margaret Thatcher (then UK Prime Minister) called upon to redevelop land in East London left derelict by the decline of the ports into what is now Canary Wharf, one of the world’s leading financial centres. The development of Canary Wharf has not been without controversy. Building started in 1988 but the envisaged transport infrastructure was not delivered until 1999 when the Jubilee line extension opened. Without adequate transport, there was limited interest from large financial companies to move into the area although two newspaper companies were attracted to the new open plan spaces on offer. The iconic One sky scraper became the UK’s tallest building when it opened in 1991. Unfortunately, the completion of the building coincided with an economic downturn in the UK which exposed Olympia and York’s high levels of debt, ultimately leading the company to declare bankruptcy in 1992. In the intervening years, Reichmann tried to buy his way back into the site, Canary Wharf has changed hands on numerous occasions and continues to expand. In April 2015, Brookfield Property Partners (which also originated in Canada) and the Qatar Investment Authority jointly acquired the . Reichmann’s original vision for a modern open-plan business hub has over the decades been realised. The 97-acre estate currently has 37 office buildings and more than 300 shops, cafés, bars and restaurants, providing employment to over 112,000 people. A mixed-use extension to the estate is being built on neighbouring , with plans to offer 3,200 residential units, 2 million sq ft of commercial office space and a further 335,000 sq ft of shops, restaurants and community uses. The first offices are scheduled to open in 2019.

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Canada’s leading global real estate investment firms It has been argued that Reichmann opened the doors for Canadian companies to think globally for real estate investment opportunities and they are now amongst the most influential global real estate investors. Five Canadian companies (Ivanhoe Cambridge, Sun Life Financial, Canadian Pension Plan Investment Board, Ontario Teachers’ Pension Plan and OMERS) are within the top 25 global real estate investors and together hold real estate assets under management worth US$ 144 billion. Three of these companies (CPPIB, Ontario Teachers’ Pension Plan and OMERS) are public pension funds which over the last two years have increased real estate assets under their management by 26 per cent from US$ 56.5 billion to US$ 71.2 billion. Figure 1. Top global real estate investors, by real estate net Assets under Management (US$B)

Source: Preqin, 2017

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Total commercial investment into UK real estate Over the past decade, the UK has received nearly US$ 29 billion of commercial real estate investment from all Canadian sources reaching its peak in 2015 when US$ 8.775 billion was invested. In 2016, Canadian investments accounted for 4.4 per cent of direct total investment from overseas into UK real estate. Figure 2. Total Commercial Investment from Canada into UK Real Estate, 2006 to 2016

Source: Real Capital Analytics

Investments from Canadian Pension Funds Canadian pension funds have been directly acquiring a wide range of assets from around the world since the early 1990s when Provincial Governments legislated that they could be run by professional boards. These large-scale and long term investors have escaped relatively lightly from tougher regulations introduced to the banking sector following the financial crisis of 2008-2009 and in an environment of low interest rates which are affecting returns from traditional investments, are now investing in a wider range of assets including real estate.1 Aside from real estate, Canadian Pension Funds have invested in major infrastructure such as UK ports, , High Speed 1 and have acquired other companies that are responsible for providing community support services and mobile telephone services.

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Oxford Properties to other pension funds, CPPIB works on long-term investment timelines which involves developing strategies to cope with Oxford Properties, the real estate arm of OMERS Pension Fund, potential political uncertainty. opened an office in London in 2008 to invest, develop and manage programmes throughout Europe with a focus on core office and “If we are investing on 10 or 20 years, the political risks are retail assets in Central London and Paris. cycles. We are more focused on the fundamentals of the market: whether we think it is a good economy; does it have a good Its investments into the UK include: legal system; does it have a good financial structure; what are ▪▪ 50,000 sq ft of high end retail and office space the demographics? Those topics are closer to our heart.” in New Bond Street, London as part of a joint Andrea Orlandi, head of real estate investments for Europe, venture with Richemont’s real estate CPPIB4 investment fund purchased in 2014. Four months after the Brexit vote, in October 2016, CPPIB ▪▪ 374,000 sq ft of office space at Paternoster announced an extension to an existing joint venture with Hermes Square, London purchased in 2012 which Investment Management at Wellington Place, Leeds. Wellington means that Oxford holds the majority Place is a mixed-use development providing 1.5m sq ft of offices, share of the Paternoster Square estate retail and leisure facilities in a prime central Leeds location. The management company. outlined planning permission for the eight acre site was for ▪▪ A joint project with British Land to develop The 1m sq ft. Leadenhall Building, also known as “The Cheesegrater” due to its distinctive shape, 1Inside the risky strategy that made Canada’s biggest pension plans the new which opened in 2015 and provides ‘masters of the universe’, Teresa Tedesco and Barbara Schecter, Financial Post, October 2016 2 610,000 sq ft of office and retail space. 2Data extracted from www.oxfordproperties.com on 1st March 2017 3Data extracted from www.cppib.com on 2nd March 2017 4Investor interview: CPPIB, Richard Lowe, IPE Real Estate Magazine, Sept/Oct 2016 CPPIB CPPIB also opened a London base in 2008 and by December 2016 Margarethe Theseira had made direct commercial investments into six offices schemes The material is provided by Dr Margarethe Theseira. She is a in Central London with a combined 652,000 sq ft of gross leasing leading independent consultant with extensive experience area. CPPIB’s geographical interest extend beyond the Capital in researching and developing policy and strategy work City and its immediate vicinity when it comes to exploiting with clients spanning the private, public and charity sectors. opportunities within retail. It has invested in 5,295,000 sq ft of Margarethe spent over a decade managing the economics and retail space in shopping centres in Glasgow, Canterbury and intelligence functions for the Mayor of London and Greater Birmingham as well as in London.3 These investments have taken London Authority Group. She is an Associate of the Centre the form of joint ventures with a range of partners. for London, an Honorary Senior Research Fellow at University For CPPIB, the attraction of building and managing a portfolio of College London and holds a PhD in modelling awarded by property investments is to provide a stable income stream that is Cranfield University. pegged to inflation over the long term with the potential for asset value growth. CPPIB recognises that real estate investment brings diversification benefits as it has a relatively low correlation with other asset classes such as public equities and bonds, and provides a cushion against market and business-cycle volatility. In 2015, CPPIB entered the student housing market when it purchased for £1.1 billion one of the UK’s largest student accommodation providers, Liberty Bell along with the Liberty Management Platform. UK property represents 14.1% of CPPIB’s real estate portfolio with a value of around C$5.2 billion. CPPIB’s interest in UK real estate remains undiminished post Brexit and the company’s strategy is for the UK to continue as its core market in Europe. Similar

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