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Foreign ownership of City property doubles in less than ten years – University of Reading

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Foreign ownership of City property doubles in less than ten years

Release Date 31 May 2006

The rising tide of foreign, often anonymous property owners, in the City of London highlights its continuing unique appeal, but could threaten its long-term future. This is the main conclusion of 'Who Owns the City 2006?', the third major report published by Development Securities PLC on ownership and occupation in the City of London. Highlights  Proportion of foreign ownership has more than doubled in less than ten years from 20% to over 45%.  Properties with multiple, often anonymous, owners now account for 54% of total office space.  Private equity vehicles have increased their share of the City office market from 1% to 14% in ten years.  A quarter of the City is owned by German, US and Japanese investors.  £138 billion debt on UK commercial buildings, three times greater than at the last property crash, suggests new City owners are highly leveraged.  Fragmented, more highly geared, ownership structure increases City's vulnerability to shocks and boosts volatility. The report, written by Colin Lizieri, Professor of Real Estate and Finance at the University of Reading, for Development Securities, reveals that over 45% of City office space is now owned by foreign investors. That compares with 20%, according to the first 'Who Owns the City?' report published in 1998 and 38% in the second such report published in 2001. German investors' share of commercial City space doubled between 2000 and 2005, from 8% to 18%. The next two most dominant overseas investors are the US and Japan with respectively 6.8% and 2.5% of commercial City space. Whilst this significant rise in inward investment indicates the current confidence in the City and enhances property market liquidity, the increasingly fragmented character of the ownership of City properties does raise some serious long-term concerns says the report. Traditional owners of City properties, such as charitable institutions and livery companies, have been replaced, to a large extent, by a range of often anonymous offshore nominee companies, private equity firms, and other hybrid corporate vehicles, many of which have short-term property interests. The report highlights that the higher leverage among many of these new property owners makes the City more vulnerable to shocks and increases volatility. Also the shorter holding periods and emphasis on returns and maximising cash flow, particularly among private equity firms, could weaken their commitment to the maintenance and stewardship of the City's buildings. Another concern raised by the report is that development continues apace in the Square Mile. A total of 3.4 million square feet of office space is currently under construction, of which 75% is speculatively built, despite 10% of office space in the City remaining unoccupied. Other broader factors that could further dampen the City of London's appeal says the report are the still high rental costs - the City of London is currently the world's fourth most expensive office location - public transport problems and unfavourable tax regulations. Roy Danzic, Chairman of Development Securities PLC, commented: "When we undertook our initial research back in 1998 into the ownership of the Square Mile, we never anticipated that ownership trends would change so markedly in such a short space of time. The current research has identified new players, many of whom are off-shore, and whose investment horizons are likely to be considerably shorter than their recent predecessors. It is not unreasonable to suppose that this could lead to increased volatility. "The City of London has indeed become a more international location, both as to a global financial centre and as an investment location." End For further information: Richard Evans/Alison Howard The Communication Group PLC Tel: 020 7630 1411 Copies of the full report by The University of Reading are publicly available at http://www.developmentsecurities.com or http://www.reading.ac.uk/REP. Notes for editors Who Owns the City 2006? In 1997, Development Securities PLC commissioned Professor Colin Lizieri of the University of Reading to undertake an in-depth research project examining trends in property ownership and overseas investment in the City of London. Who Owns the City? was the groundbreaking report based on the project's findings. A second report was published in 2001. With the publication of a third report, Who Owns the City 2006?, the research has been updated to include the significant changes that have occurred in the past five years. Development Securities PLC Development Securities PLC is a property development and investment company. Its principal objective is to carry out substantial, complex developments in a risk averse manner with a view to adding maximum value for its shareholders. Whilst Development Securities actively seeks development sites in Central London, the high pricing of development sites, in contrast with the relative weakness of the occupational markets, especially in the City of London, has led Development Securities to seek enhanced shareholder returns outside of Central London, often in partnership with local developers. Current developments include Colindale, London, NW9, CityPark in Central Manchester and Luneside in Lancashire. Richard Evans Managing Director Financial Division Tel: 020 7630 1411 Fax: 020 7828 2122 E-mail: revans@thecommunicationgroup.co.uk Web: http://www.thecommunicationgroup.co.uk

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