After rumours lasting a week or more, Liberty International on Monday announced a magnificent seven-acre buy in Central London. The purchase, for cash of £420m, is described as an investment of a size and quality seldom available on the open market in London’s West End.
The package includes the iconic Covent Garden Market and surrounding Piazza as well as properties around the Market in King Street, Henrietta Street, Floral Street, James Street, Long Acre, Tavistock Street, Wellington Street and Maiden Lane.
The acquisition is seen by analysts as large “but reasonable” for Liberty International, a highly rated stock following the transparency of its business model, quality of underlying investments, and no individual shareholding of more than 10%. The UK-based Liberty International, listed in London and Johannesburg, holds property assets worth more than £7bn.
The Covent Garden acquisition was made via Capital & Counties, a wholly owned retail and commercial property subsidiary of Liberty International, already holding property investments worth more than a billion pound.
Commercial property in the UK has been performing very well. Ian Cullen of the Investment Property Databank (IPD), interviewed on Cantos, an internet service, said the latest IPD UK Quarterly Index, tracking commercial property valued at a total of £108bn, recorded returns of 4,9% in the second quarter, after 4,5% in the first quarter of 2006.
The comparative performance was favourable; Cullen reminded that the second quarter was a bad one for equities and that indeed, property was the only positively returning asset class. There was a negative 1,8% return from equities and just over 1% on bonds. Over the past 12 months, commercial property in the UK is comfortably the top performer with a return of 21%.
Meanwhile, the outlook for UK interest rates appears benign. Analysts at ING Financial Markets reckon the Bank of England is likely to leave its core interest rate unchanged at 4,75% for “a considerable period”. The BoE had earlier hiked rates by 25 basis points to 4,75%, but earlier than was widely expected. ING argues that the BoE is unlikely to raise rates again in the near future, since core inflationary pressures in the UK have slowed to a subdued rate in-line with trend.