Funds bargain-hunt UK properties

Gulf investors have started buying up some of London's trophy office buildings as prices dip to 25-year lows. Al Salam Bank in Bahrain is the latest to enter the market with the purchase of Milton Gate in the City of London for US$220 million (Dh807.8m). It acquired the seven-storey building from the UBS Triton Fund in a 50-50 partnership with the private equity firm Evans Randall, the bank said in a statement yesterday on the Dubai Financial Market website. "This investment opportunity has capitalised on the favourable market conditions in the London commercial real estate sector with a view to creating value through compression of initial yields in the medium term," said Yousif Abdulla Taqi, the chief executive of Al Salam Bank. The acquisition comes just weeks after the Oman Investment Fund, a sovereign wealth fund, bought a 75 per cent stake in the Bishops Square building in London in a deal that valued the property at £440m (Dh2.65bn). Fadi Moussali, the regional director of the international capital group at Jones Lang LaSalle, said London had become a prime target for funds with cash to spare. Jones Lang LaSalle brokered both of the London deals. "Prices are at a 25-year low in London," he said. "These funds are viewing this as a once-in-a-lifetime opportunity." The buildings have strong tenants, giving the investments a reliable return, he said. The initial yield on the Milton Gate investment will be 7.45 per cent. Bishop Square will have a 7.75 per cent yield. Blair Hagkull, the managing director of the regional office of Jones Lang LaSalle, said he was now seeing a rush of inquiries about the London property market. "A lot of the big investors are seeing a bottom in the UK market," he said. There have been other signs of recovery in the UK housing market. Prices rose 2.6 per cent last month after three months of declines, according to a report by Halifax earlier this month. Halifax, a major lender to home buyers, said there were "some tentative indications" that the market was stabilising. [e-mail]