The Evening Standard (thanks to Alan): RISING oil prices and falling property prices are reshaping London at a pace not seen since the oil price quadrupled to $12 a barrel in 1974 and the resulting recession slashed real estate values.
Last week, Kuwait bought an office block in the City for £400 million, roughly the income from six million barrels of oil at today's prices. In May 2007, the block would have cost £540 million, roughly the income from 17 million barrels of oil at last year's prices. This 11 million-barrel saving comes from oil prices doubling to $130 a barrel and the price of City property falling by 25 per cent. The beneficiary, in this case, was St Martins, the state of Kuwait's long-time UK property arm. It purchased the new 500,000 sq ft site in Lime Street from British Land.
The rulers of the Gulf states have long enjoyed a love affair with London. When the sun gets too hot in their native lands they like to flock here, to their palatial houses in the centre of town, in Mayfair and Belgravia, and out in areas such as Coombe Hill in Kingston and St George's Hill in Weybridge. Their adoration of racing sits nicely with the highlights of our summer season, of the Derby followed by Royal Ascot.
Right now, fleets of limousines are being polished, gardens are being spruced up and swimming pools cleaned in preparation for the annual invasion.
This year, though, extra spice has been added to the romance. They have moved beyond owning mansions, cars and bloodstock to buying up some of our plum commercial parcels of real estate. The soaring cost of oil has meant that for them, London, their favourite playground, has become one giant Monopoly board. If they alight on a property they like they can acquire it. Nothing is beyond them - they are that wealthy...
Middle East buyers spent £8.9 billion on office, retail and industrial property in the UK in the year to May 2007, according to property agents DTZ. They have an unexpected cash surplus of around $300 billion to spend, thanks to rising oil prices. At the same time, buyers without access to oil money are largely being driven out of the market, thanks to the credit crunch.
The huge surge of Gulf riches is affecting the London market in two ways. The first comes from a quickening in the number of deals for existing real estate. "There is definitely a lot of activity out there but it tends to be below the surface," says a leading City investment agent, who does not want to be named because the principals he does business with like to keep their affairs quiet.
These "investment" deals involve nominee companies, fronted perhaps by banks or firms of lawyers. They buy occupied blocks of offices or shops from landlords. The unnamed nominee could be anyone from a member of the Saudi royal family to an oil-enriched Russian. The really big deals tend to be done by the so-called sovereign wealth funds. The big daddy fund of SWFs is the Abu Dhabi Investment Authority (Adia) with assets of $875 billion. It owns Berkeley Square. So far this year, Adia has spent £640 million on three blocks in Knightsbridge and the ExCel exhibition centre...
