Nov. 13 (Bloomberg) -- HSBC Holdings Plc, Europe’s largest bank by market value, agreed to sell its London headquarters to South Korea’s National Pension Service for 772.5 million pounds ($1.29 billion), less than a year after buying the building.

HSBC will remain at 8 Canada Square, a 656-foot (200-meter) tower in the Canary Wharf financial district, following the sale to Seoul-based NPS, according to a statement today. The building was designed by Norman Foster and has 102,000 square meters (1.1 million square feet) of space spread over 45 stories.

The bank has reported more than $50 billion in loan losses and asset writedowns spurred by sour U.S. home mortgages and raised more than $29 billion in capital since 2006, according to data compiled by Bloomberg. The company said April 12 that it was considering selling three headquarters buildings in London, Paris and New York as it sought cash.

“It’s a good deal for the vendors at a time when they could clearly do with a bit of extra money,” said Mat Oakley, head of commercial real estate research at broker Savills Plc. “It’s exactly the kind of deal that you would expect from a sovereign wealth fund and what they should be doing.”

NPS is South Korea’s largest investor. At least two other sovereign wealth funds have bought commercial properties in London this year, taking advantage of lower prices and the pound’s weakness. On Nov. 4, Qatar agreed to purchase the U.S. embassy building in Mayfair for an undisclosed amount, while in June a fund controlled by Oman acquired a majority stake in an office building valued at 445 million pounds.

Expensive Buildings

The funds have focused on more expensive buildings on prime sites occupied by tenants with good credit ratings and long leases. The financial crisis has made it harder for real estate investors to obtain debt finance, particularly for larger, costlier properties.

Earlier this month, NPS spent 268 million pounds to buy 88 Wood Street in the City of London district and a 50 percent stake in 40 Grosvenor Place, near Buckingham Palace.

Values of offices in the City of London, the U.K. capital’s main financial district, fell 50 percent from the market’s peak in July 2007 to Aug. 31, according to Investment Property Databank Ltd. The pound depreciated by 16 percent against a basket of other currencies in the two years ended June 30, Bank of England data show, making London real estate even cheaper for overseas investors.

In the City, the rate of return for prime office buildings worth more than 125 million pounds declined 0.5 percentage point to 7 percent in the third quarter, according to Jones Lang LaSalle Inc. The rate of return falls as property values increase.

London Appeal

“This is testament to how attractive London is to outside investors,” James Young, a partner at Cushman & Wakefield Inc., said of HSBC’s deal with NPS. Young heads the broker’s City of London office.

NPS is acquiring the headquarters building for an initial investment yield of less than 6 percent. HSBC will pay NPS an initial annual rent of 46 million pounds for the Canada Square building, where more than 8,000 people work. The lease runs for 17½ more years.

Prospects for the central London office market may also be improving because the financial crisis stymied new development. As the supply of new buildings coming up for rent wanes, it’s helping halt a slide in rents.

Rents in the Dockland areas of East London, where Canary Wharf is located, were about 37.50 pounds a square foot for prime office space in the third quarter, Chicago-based Jones Lang estimates.

Record Price

It’s the second time in two years that HSBC has divested the Canary Wharf building. The bank sold the skyscraper to Metrovacesa SA in June 2007 for 1.09 billion pounds, the highest price paid for a single building in the U.K. It then bought the property back in December 2008 for 838 million pounds, or a 250 million-pound profit, after the Spanish developer failed to refinance a loan from the bank.

HSBC had said that if the London, Paris and New York buildings didn’t fetch the right price -- either collectively or individually -- it wouldn’t sell.

The transaction announced today will allow HSBC to book a 350 million-pound gain in its 2009 accounts, the bank said in the statement.

HSBC agreed last month to sell its Manhattan headquarters at 452 Fifth Ave. for $330 million in cash to a company controlled by Israeli investor Nochi Dankner.

The bank is also in talks to sell 103 Avenue des Champs- Elysees near the Arc de Triomphe in the French capital.

CB Richard Ellis Group Inc. and Linklaters LLP advised HSBC on the sale of the London property. JP Morgan Asset Management and Berwin Leighton Paisner advised NPS.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

Last Updated: November 13, 2009 15:47 EST