HSBC Completes $2.2 Billion Sale Leaseback of London HQ

Bloomberg - April 30, 2007

The London headquarters of HSBC Holdings Plc, Europe's largest bank by market value, was bought by Spanish real estate company Metrovacesa SA for 1.09 billion pounds ($2.2 billion), a record for a U.K. building.

HSBC will remain in the 45-story tower at 8 Canada Square, in the Canary Wharf business district, according to a statement today. About 8,000 people work in the building, which was designed by Norman Foster and has 1.1 million square feet of space.

"People are prepared to pay a premium to get into the London market, even when some are calling the top of the market," said Sarah Bate, head of central London research at Knight Frank LLP.

Central London is now the world's most expensive city in which to lease an office and, according to an estimate by Bate, investors bought a record 15.3 billion pounds of properties in the area last year. A shortage of space is pushing up rents as financial-services firms hire more people.

The previous record for the acquisition of a U.K. office building was the 690 million pounds paid in 2003 by Royal Bank of Scotland Plc for Citigroup Inc.'s London headquarters. That property is on the opposite side of the same square at Canary Wharf development as the HSBC Tower.

HSBC agreed to sell and lease back the building from Madrid-based Metrovacesa for the next 20 years, paying an initial annual rent of 43.5 million pounds, or 3.99 percent of the purchase price. HSBC's long-term debt is rated Aa2 by Moody's Investors Service and AA- by Standard & Poor's.

Rents for new or freshly renovated offices in the City of London district, London's main financial services center, last year rose by more than 18 percent to 55 pounds a square foot, according to Knight Frank.

Merrill Lynch & Co. Inc., the world's biggest brokerage, is considering a sale and leaseback of its London headquarters building to take advantage of record property prices in the city. GIC Real Estate Private Ltd., the real estate investment arm of the Government of Singapore, may buy the building for about 600 million pounds, the Financial Times reported earlier this month. Neither Merrill Lynch nor GIC would comment on the report.

In February, the London office tower dubbed ``the Gherkin'' was bought by IVG Immobilien AG and Evans Randall Investment Management Ltd. for 600 million pounds. The Gherkin was also designed by Foster.

CB Richard Ellis Inc. and Freshfields LLC advised HSBC on the sale of the property. Sphere: Related Content