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real estateDecember 23, 2020

Northacre bullish on growing London portfolio despite Covid challenges

UK-based luxury property developer owned by Shuaa Capital plans more investments for 2021


Dubai-backed luxury property developer Northacre is optimistic about growing its prime central London portfolio in 2021, despite the coronavirus pandemic delaying the completion of its two existing developments.

The UK-based company, a subsidiary of Dubai investment banking firm Shuaa Capital, has experienced delays to the construction of The Broadway project in Victoria, as well as challenges related to buyers flying in to view units at its No.1 Palace Street development, which overlooks Buckingham Palace.

“We are still keen on London as a market and we're bullish about it, but we'll go with space where we can see that there's value to be created,” Mustafa Kheriba, executive director of Northacre and deputy chief executive and group head of asset management at Shuaa Capital, told The National.

“We are definitely looking at growing our investment in prime central London. We like the market and we think central London has a very unique global appeal and will continue to do so.”

Mr Kheriba said the gross value of Northacre's London developments stands at £1.2 billion (Dh1.59bn). The company was acquired by Abu Dhabi Financial Group in 2013 before it merged with Shuaa Capital in August last year.

The first of its current two London projects, The Broadway, is located on the site of the former New Scotland Yard Metropolitan Police Headquarters, which ADFG bought from the Mayor’s Office for Policing And Crime in 2014 for £370 million.

Originally set for a 2021 completion date, the mixed-use development will provide 268 apartments across six residential towers, comprising 32,981 square metres of space, alongside offices and retail outlets. Prices start at £1.75m, with the luxury pads offering views across Westminster and St. James’s Park, and features such as health, fitness and spa amenities, including a 25-metre pool and a large public courtyard.

Northacre “topped out” construction on the building in October, when the final piece of the structure was added to the top floor of the 19-storey building.

While sales of the development have only hit 30 per cent so far, they have been buoyant during lockdown, helping to secure £41m in transactions over the past six months at a time when the pandemic affected construction progress and delayed completion until the first or second quarter of 2022.

“Covid caused a big, big delay due to the limited capability of people being on site,” said Mr Kheriba.

“It was a major issue to have the full realm of employees on site. So a few months' delay definitely was caused by the outbreak.”

The pandemic has also dented sales progress on the company's No.1 Palace Street project, which was purchased for £310m in 2013 and will become the only property offering a view of the gardens of Buckingham Palace. Its completion date has been pushed back from 2019 to the middle of next year, with 60 per cent of the development sold so far, but only a couple of units sold in the past six months, according to Mr Kheriba.

“The remainder of the inventory available is predominantly high ticket apartments and typically those buyers … like to see and view what they're buying,” he said.

“So that's why we've opted to sort-of hold [off] on selling the remaining apartments until it's near the completion. That way, any potential buyers can actually see what the apartment looks like, before, you know, paying £10m-plus.”

Alex Casaki, head of the London Desk at consultancy Core, said travel restrictions during the pandemic limited the opportunity for UAE buyers to view £5m-plus properties.

“With the UAE and UK travel corridor now open, the value on offer in prime central London districts represents a lucrative buying opportunity for UAE buyers who have historically taken a longer-term view of this market,' he said.

Mr Casaki expects to see a surge in transactions before April 2021, when a stamp duty land tax (SDLT) holiday introduced by Rishi in July ends, coinciding with the introduction of a 2 per cent SDLT surcharge for non-UK resident buyers.

While prime London properties are priced nearly 20 per cent lower than peak 2014 prices, according to Core, Mr Kheriba expects the market to recover if a trade deal is reached between Britain and the EU.

“If there's a no-deal Brexit you will see a little bit of contraction. But if we do get a Brexit deal, then you will see good momentum. But either way, the real estate and the residential sector will recover,' he said.

'London is still a dominant destination for global buyers and the developments we focus on at Northacre, all super-prime locations and super-prime developments, are not plentiful so the demand is always there for that type of building.'

Walk into No.1 Palace Street, where properties start at £2.35m, and as you escalate upwards you can quickly see why it is a one-of-a-kind type property.

Located in Victoria opposite Buckingham Palace, the building sits on an island site and offers 72 luxury homes with five different architectural styles: Italian Renaissance, Beaux-Arts, French Renaissance, Queen Anne, and 21st-century Contemporary.

Interested buyers can currently view one of two show homes located in the Contemporary segment of the building, designed by British architectural firm Squire + Partners and decorated with artwork and bespoke furniture under the guidance of London-based designer Natalia Miyar.

The site is set within an historic conservation area thanks to its longstanding affiliation with British royalty, as part of the building was the Palace Hotel, built in 1860 to host the overflow of distinguished guests from Buckingham Palace.

Up to 30 per cent of the development's buyers are from the Middle East, said Mr Kheriba. However, Northacre has also seen an increase in enquiries from US buyers and some European and local parties.

'It appeals to quite an eclectic buyer base simply because it's a quintessentially English development, with all the modern amenities that are required by sophisticated buyers today,' he said.

While both The Broadway and No. 1 Palace Street show Northacre's expertise in converting historical London sites into residential property, Mr Kheriba said this is not something they are fixated on.

The company still has its eye on the Ministry of Defence-owned Hyde Park Barracks in Knightsbridge, though, where the Queen’s Household Cavalry is located.

“We’d still be interested if it comes into the market, but I think it would be in a few years,” Mr Kheriba said. “The government needs to decide when they want to put it up for sale.'

While London has eternal appeal, Mr Kheriba said the weaker pound offers those holding US-linked assets 'a discount', encouraging them to either stretch their budgets or purchase more than one unit.

Transaction activity for London’s prime residential market has picked up pace since the easing of the UK’s lockdown restrictions in May, with a significant increase in the third quarter, according to Core.

The number of new instructions in September 2020 almost doubled compared with the same time last year, according to data from Lonres, and instructions were up 38 per cent from the September average between 2010 and 2019.

Last year, Northacre recorded a net loss of £2.4m before taxation from total revenue of £3.8m, something Mr Kheriba attributed to operational losses due to the timing of when its fees are paid.

While he couldn't comment on the company's performance this year, looking ahead Mr Kheriba said the company would consider converting London's unwanted office blocks – as a result of the pandemic – into luxury residential units.

While Northacre has a European interest in Montenegro, where it manages a waterfront property under a fund structure to attract development into the city for people looking to diversify their citizenship and immigration status, Mr Kheriba said the focus for next year remains solely on London.

“London has a very unique appeal. It remains the cultural hotspot of the world; you've got an impeccable legal and commercial tax system; you've got the bridging gap between East and West; and you've got a language that is understood by 80 per cent of the population,” he said.

“The fact that historically investors in London have enjoyed great capital appreciation on their investments, and a decent yield on their rental properties, means it has all the elements that play for a unique global city – it's unmatched.”

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