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Life after the Olympics – Doug Morrison

The world’s top investors are hoping to score from the UK capital’s Olympic legacy.

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London Olympics

There is still more than a year to go to the 2012 Games, but the Olympic flame already burns brightly over east London, casting the area’s residential and commercial property markets in a healthy light as far as international investors are concerned. While controversial proposals to turn the Olympic Stadium over to Premiership football club West Ham United after the Games have hogged the UK headlines it is the fate of more prosaic legacy issues, such as housing supply, that has captured the imagination abroad.

Overseas investors from as far afield as the Middle East, Asia and the US have ended up on the shortlist for the purchase and long-term management of the athletes’ village. The likes of Qatari Diar, LeFrak Organisation and Hutchison Whampoa are vying with such UK residential investment stalwarts as Dorrington, Grainger and Wellcome Trust. The village includes 1,439 apartments and development land for a further 2,500 new homes, making it the biggest residential sale of its kind in the UK. If the selling agency, the Olympic Delivery Authority (ODA), raises its targeted £500m for the assets, it will also represent a remarkable change of fortune for the project.

It was only in May 2009 that a funding package from Lend Lease, the ODA’s original private-sector partner at the village, succumbed to the credit crunch. Since then, the ODA — or in other words, the UK taxpayer — has borne the construction risk. However, the village has emerged on track for its initial, athlete-ready completion in autumn 2011, which coincides with the opening of Westfield’s adjacent shopping and leisure complex. Westfield is a seasoned player in UK retail but, nevertheless, the Australian developer takes the ‘early mover’ gold medal for embarking on a 176,500 sq m project when many others would have walked away. And all of a sudden the perception of the village shifted from a 2012 Games facility — costing £1.09bn to build — to an investment prospect of some promise, sitting next to what will be one of Europe’s largest shopping malls. The mall is already over 75% let. In addition, Westfield has reached agreement with Intercontinental Hotels Group to build a 188-room hotel and 162 serviced apartments, while it is pushing ahead with plans for a 267- room Premier Inn and 12,077 sq m of speculative offices.

The payback for Westfield came last year with the sale of a 50% stake in the complex to fund manager Henderson Global Investors for £750m. Another key endorsement of east London came last July when Inter Ikea, the investment arm of the Swedish furniture giant, acquired 5.2 ha of former industrial land at Sugar House Lane on the Olympic fringe. Plans include offices, warehouses and 1,500 homes. One of the many public-sector agencies claiming credit for Inter Ikea’s arrival in east London is the London Thames Gateway Development Corporation, which says it has attracted £1bn of inward investment since 2005. Property consultant CB Richard Ellis (CBRE), meanwhile, calculates that, since 2007, 33,445 sq m of offices, 6,503 sq m of shops and 2,700 homes have been developed across Stratford, Canary Wharf, Greenwich Peninsula and the Royal Docks.

In that time too, however, the outer reaches of the so-called Thames Gateway region have been slow to recover from the recession. Most of the inward- investment effort is now directed at the area around the Olympic site in Stratford, rather than Essex and north Kent, or even the Royal Docks at the eastern end of London Docklands. Yet CBRE hails the Inter Ikea deal as a sign of the gathering Olympic momentum that is starting to shift the international focus from west to east London. Matt Black, head of CBRE’s east London team, says: “If you look at the infrastructure, the expenditure and the general improvement in east London over the last five years, which is being accelerated by the Olympics… it has certainly put an international spotlight on an area that was previously forgotten.”

With Inter Ikea and the Westfield centre taking shape physically and financially, it is small wonder that global investors have emerged for the athletes’ village. There is credence now to the claim from the Olympic agencies that the village lies at the heart of “a new city for east London”. Only time will tell. But at least with the winning bidder due to be named for the village this summer, the investment community will learn if the ODA has got it right with its £500m price tag — roughly the anticipated amount of sales of the 1,439 flats after their conversion from athletes’ accommodation to conventional apartments in 2014. There is already the comfort of £270m from last year’s sale of 1,379 lower value flats in the village — earmarked for affordable housing — to a consortium called Triathlon Homes. The big unknown is the value of the development land, which is the long-term element of the sale. However, the bidders for the village can see that it is one part of a carefully planned mixed-use development strategy by the Olympic Park Legacy Company for the land in and around the recently named Queen Elizabeth Olympic Park. The ‘South Plaza’, for instance, will be an area of the park devoted to entertainment and residential.

“We anticipate that the park could provide between 8,000 and 10,000 jobs over the long term, in addition to 8,500 jobs in Westfield Stratford City shopping centre when it opens in 2011,” says Baroness Ford, chair of the Olympic Park Legacy Company, which is now the main coordinating body for future investment. Ford says that “business, creativity and innovation will be the running themes” for the future use of such Olympic facilities as the Press Centre. From here to the City of London, there are plans to create a UK ‘Silicon Valley’. Ford adds: “There will also be opportunities linked to the Park’s venues and 101 ha of open spaces, as the area becomes a leading visitor destination.” All of this sounds good but, in a still fragile economy, nothing is guaranteed. Concerns are regularly aired over the amount of new housing potentially flooding the market. But Andrew Wiseman, chief executive of leading east London housebuilder Telford Homes, reckons the fears have been overdone. He points to “a massive shortfall of homes” for the foreseeable future, allied to “unrivalled transport connections” — which is why the likes of Telford have had little trouble finding overseas as well as UK buyers. “The Olympics have helped thrust east London into the spotlight over the last couple of years and the area is now the focus of international attention,” Wiseman says. “This has naturally created interest in potential investment opportunities, particularly from Asian investors, who have a long heritage of investing in London residential schemes.”

Baroness Ford acknowledges the economic challenges ahead. But she says: “Our housing strategy has taken into consideration the number of highdensity developments already being planned for the local area, the current state of the housing market, the positive response by developers and, importantly, the desire of local people who will want to live, work and bring up families in the area.” If the Olympic Park Legacy Company has got its strategy right, then east London will be on the world investment map in its own right. A recent study by economic forecasting consultancy Oxford Economics says that, though future wealth generation cannot be taken for granted, a fully generated east London could contribute an additional £21bn a year to the capital’s economic wealth. With so much at stake, all eyes will be on the area way beyond 2012.

This article was taken from MIPIM 2011 Focus on the UK supplement. Read more here.

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