In a significant real estate transaction, a private investment group guided by some of Hong Kong's wealthiest property tycoons is divesting a prestigious office building in London's affluent St James's district. This move comes in the wake of a notable retreat by investors in the UK real estate market, largely influenced by challenges in both the local and global market conditions.

Joint Treasure International, the investment vehicle connected to elite investors such as the Cheng family of New World Development, the Woo family from Wharf Real Estate, and David Chiu, the chairman of Far East Consortium International, is in the process of selling 3 St James's Square. The buyer, Realty Income, a prominent commercial property trust based in San Diego, is reportedly acquiring this prime asset for £125 million (approximately $161.5 million), as noted by real estate consultancy Savills.

The decision to lower the sales price represents a strategic shift; the initial asking price for the property was set at £155 million when it hit the market in 2022. This figure was subsequently adjusted to £135 million earlier this year, reflecting broader market trends, which Savills cites as "demand for large-scale assets across the risks spectrum." Realty Income had yet to respond to inquiries regarding the transaction at the time of publication.

The Jewel of St James's Square

At the reported sale price, Joint Treasure is letting go of this grade-A office space for approximately £2,453 per square foot. The investors initially secured the property in 2017 for £135 million, purchasing it from the UK-based Welput office investment fund. The building, which boasts 50,954 square feet of floor space distributed over nine floors and a basement, is prominently located just a 15-minute walk from Buckingham Palace.

Currently, the asset has secured tenants including the media giant Condé Nast, though the basement and ground floors remain unoccupied. The average passing rental rate is £101.95 per square foot, which is notably lower—by 43%—than the prevailing market rate of over £180 per square foot in the surrounding St James's area, home to renowned firms like Temasek, Carlyle Group, and Starwood Capital.

A Cautionary Tale for Investors

The landscape of the West End has recently faced challenges; in the third quarter, office investment in this lucrative market plummeted to £790 million, signaling a 20.4% decline from the previous quarter and a staggering 39% fall from the long-term average of £1.3 billion, as reported by Knight Frank. Concurrently, office vacancy rates hovered around 7.8%.

Joint Treasure International was established in 2008 by the late banker Daniel Yiu and aims to invest in overseas properties for Hong Kong’s financial elite. The fund has garnered support from a select group of investors who can choose their involvement in property dealings. Among its notable backers are the Wee family from Singapore's United Overseas Bank and prominent families from both Hong Kong and Malaysia.

In addition to 3 St James's Square, Joint Treasure has a diversified portfolio, including a notable acquisition of an 8-acre site in Beverly Hills in 2010 for $148.3 million, which it later sold to Dalian Wanda Group for an impressive $420 million in 2014.

Market Shift Signal

This sale is part of a larger trend where Hong Kong investors are hastily divesting from UK properties, marking a stark contrast to the pre-pandemic investment surge. For instance, in September, Chinese Estates, another massive developer from Hong Kong, listed both a commercial and residential property at 11-12 St James's Square and shed an office block at 14 St George Street shortly before that.

Additionally, other Hong Kong-based entities, including China Motor Bus Company and veteran investor Lai Wing-to, have also offloaded properties in London, signaling an urgent reassessment of overseas real estate holdings.

As investor confidence in global markets wanes, the once-coveted investments in London's real estate are becoming a cautionary tale of timing and market conditions.