Union Investment has delayed the purchase of an office building in the City of London financial district because of the risk that the U.K. may vote to leave the European Union, said Frank Billand, chief investment officer of the company’s real estate unit.
"Until a decision has been made we are being cautious with speculative investments in London, which have leasing risk," Billand said. "We’re a bit apprehensive because we don’t know how things will turn out."
The German investment company suspended talks to buy 51 Eastcheap for about 50 million pounds ($71 million) at the end of February, two weeks after it secured exclusivity for the deal, according to three people with knowledge of the matter. Union and development partner City Office Real Estate LLP planned to extend and refurbish the building, said the people, who asked not to be identified because the terms of the deal are private.
Billand declined to discuss the details and a spokesman for City Office declined to comment.
Demand for commercial property investments in the U.K. will probably be subdued in the run-up to the EU referendum in June, Jeremy Helsby, chief executive officer of broker Savills Plc, said in an earnings report on Thursday. Land Securities CEO Robert Noel said in February that a vote to leave the political bloc would cause demand for office space to fall and values could plummet.
Union, based in Frankfurt, manages 252 billion euros ($280 billion) of assets, according to its website. That includes 30 billion euros of properties, making it Germany’s biggest manager of real estate mutual funds.
London Mayor Boris Johnson announced on Feb. 21 that he backs an exit from the EU. "For us, it was significant when Boris Johnson came out in favor of an exit because he’s an important opinion maker," Billand said.
Union isn’t pausing all its U.K. deals. The fund manager has agreed to buy Allied London’s XYZ Building in Manchester for about 85 million pounds, CoStar News reported on Wednesday.
"This is an indication of the extent of the uncertainty regarding the fallout from a possible Brexit," Nicholas Spiro, a real estate consultant at Lauressa Advisory Ltd., said by e-mail. "Even though a Brexit is unlikely, the referendum is forcing investors to pay closer attention to idiosyncratic risks at a time when there are concerns about the disconnect between market prices and underlying fundamentals."