Ontario pension fund hunts for new London property deals – Financial Times
London’s commercial property market still ranks as one of the most attractive in the world, says the head of one of Canada’s largest pension funds which is looking for new UK real estate deals.
Blake Hutcheson, chief executive of Ontario Municipal Employees Retirement System (Omers), said the fund, which owns UK investments worth C$10bn (£5.8bn), intends to “buy more” real estate in London.
“We believe in the UK. London is still one of the top five or six cities in the world to invest in for real estate. It will be one of the very best markets over the long-term,” he said. “We have made more money investing in London than any other city in the world. Nothing about Brexit will change our posture.”
Mr Hutcheson was appointed chief executive in June. Omers oversees C$109bn on behalf of more than half a million pension savers across Ontario.
Many offices across London have been abandoned by workers because of the coronavirus pandemic, which has added to the uncertainty about the impact of the UK’s divorce from the EU on future demand for real estate.
Pension funds are long-term investors and can ride out relatively short-term disruption
Demand for leased office space in London dropped 59 per cent in the second quarter, compared with the same period in 2019, according to JLL, the real estate advisory group.
Mr Hutcheson said Omers anticipated that demand for office space would only shrink by about 10 per cent in the longer term and that interest in higher quality work spaces would increase.
“We think the office market is going to be just fine. There is probably 20 per cent less demand currently than in January but businesses went too far by packing staff in and they will need to give employees 10 per cent more elbow room to ensure a safe working environment,” he said.
Omers invested C$500m as co-developer alongside British Land to build the Richard Rogers-designed Leadenhall building known as the Cheesegrater in the heart of the City. It was sold in 2017 for £1.15bn in the City’s biggest property deal to CC Land, the Hong Kong-listed investment vehicle owned by Chinese property developer Cheung Chung-Kiu.
“We did extraordinarily well but frankly I wish that we had kept Leadenhall,” said Mr Hutcheson. London’s growth prospects and the attractive supply and demand fundamentals of the city’s property market would continue to draw interest from international investors, he added.
Omers’ current London portfolio includes King Edward Court, the home of the London Stock Exchange in Paternoster Square, and the Blue Fin office building opposite the Tate Modern art gallery. It has just bought a 15-acre site next to Heathrow airport as part of a plan to invest £3bn into the European logistics sector over the next five years.
Mr Hutcheson’s confidence in the capital’s commercial property market was echoed by the UK pension fund industry.
“There are undoubtedly major challenges facing commercial property in London as a result of Covid-19,” said Julian Mund, chief executive of the Pensions and Lifetime Savings Association, the PLSA, which represents workplace pension schemes providing retirement income to 20m savers and investing £1tn in the UK and abroad.
“However, there still remains a confidence in real estate being part of pension schemes’ portfolios. Pension funds are long-term investors and can ride out relatively short-term disruption.”
A spokesperson for Sadiq Khan, mayor of London, said Mr Khan was working hard with businesses, including Omers to put in place the plans needed to ensure the city recovered “as quickly as possible”.
“Central London’s contribution to the UK economy is unique,” said a spokesperson for Mr Khan. “It’s our country’s economic powerhouse and a gateway for global investment into the rest of Britain.”