Will others follow Chinese developer R&F to Nine Elms?

The slump in the prime residential market in London has left some doubting the strength of the Nine Elms regeneration project.

These fears were underlined last month, when the sale of St Modwen’s and Vinci’s 1,900-home site in the area to a Chinese developer fell through despite having entered exclusive negotiations.

But the signing of a significant deal last week shows that the news from Nine Elms is not all bad.

Commercial investor CLS Holdings agreed to sell its 1.5m sq ft mixed-use scheme Vauxhall Square to Chinese developer R&F Properties for £155.7m - a healthy 45% above book value.

So why is CLS selling? What does the deal tell us about investor sentiment towards Nine Elms? And what is next for R&F Properties now it has made its second acquisition in the capital in as many months?

In the wake of market uncertainty around Nine Elms, you would be forgiven for thinking that CLS’s decision to sell was partly fuelled by poor investor sentiment and worries that holding onto a site in the area could depress its stock market value. But its chief executive Fredrik Widlund insists this was not the case.

Positive feedback

“We’ve been very consistent that we like the commercial aspect of [Nine Elms], but we’re not a residential developer,” he says. “The feedback we’ve had from our investors has been very supportive, especially with Apple taking space in Battersea Power Station - that certainly helped.”

CLS saw the R&F deal as a good opportunity to capitalise on this positive sentiment, he adds.

Its confidence in investor appetite for Nine Elms was reflected in its decision to put the entire scheme on the market, after initially planning to sell just the residential element, comprising 578 apartments.

It is also underscored by the fact that CLS considers its £330m worth of assets in the area - including the 200,000 sq ft Spring Gardens, fully let to the National Crime Agency - as part of its core holdings.

While it will use the money from the Nine Elms sale to buy assets elsewhere in Greater London, Widlund maintains that Nine Elms still “has great long-term potential” and that CLS has “no intention of exiting it”.

With the residential element of Nine Elms garnering the most attention in property circles, he believes the area is “underestimated” as a commercial location.

“We are still very positive about it,” he says. “All the focus seems to be on the residential side, but it’s £55/sq ft for grade-A offices here compared with £80/sq ft up in Victoria. It’s pretty good from that perspective.”

His view is echoed by Tom Moore, director at CBRE, who acted for R&F Properties on the Nine Elms transaction.

Following Apple’s commitment to take 500,000 sq ft of office space at the scheme, the Battersea Power Station Development Company said that it would look to increase the amount of office space planned for the area - and Moore thinks others are likely to do the same.

“Residential is the prominent use [in the area], but perhaps we may see more commercial space come into more schemes now, on the back of [the Vauxhall Square deal] and on the back of Apple,” Moore says. “And you’ve got the US embassy as well,” he adds, referring to its relocation to Nine Elms from Mayfair.

R&F not done yet

R&F Properties now has two sites in London, after purchasing Croydon’s iconic Nestlé Tower and surrounding properties last month for close to £60m, and Moore says it will probably buy another.

“I think they might look to acquire one more site,” he says.

“It will likely be mixed-use or residential-led. They’re more comfortable with residential in this country.”

The fact that the developer has committed to Nine Elms suggests the area remains attractive to investors and developers alike, particularly from China - which in turn means that others are likely to follow CLS’s suit and sell while demand is strong.

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