Princes ransom as oil-rich Arabs target iconic street for £1.35bn

IT MAY not mean the first Scottish souk or camel racing in the gardens, but oil-rich Arab investment funds are in talks about buying up the whole of Princes Street.

City councillors who want a world-class redevelopment of Scotland's most famous shopping thoroughfare have been in contact with "sovereign" funds from countries such as Qatar, the United Arab Emirates and Kuwait, which have billions of pounds of surplus oil revenues to invest.

Iconic global locations such as Edinburgh's Princes Street, already a magnet for well-heeled tourists from around the world for its mix of big-brand department stores and unrivalled views, are high on their shopping list.

A takeover of the whole street would reduce the number of owners and help the City of Edinburgh Council towards its goal of turning it into a world-class attraction. Properties with some of the best views in the capital are used as store-rooms when they could be shops, restaurants and cafés.

The street is home to famous names such as Jenners, Marks & Spencer, and a host of other high-street chains, as well as smaller shops and offices. It also hosts the New Club, the city's most prestigious private members' club.

Estimates of the value of the street range up to £1.35bn, effectively small change for the funds. Tom Buchanan, the council's economic development leader, said: "There are people talking to us with access to sovereign funds. They have large amounts of wealth.

"We've had people from those types of funds express an interest, as well as a number of comparatively smaller developers. They would come to us to develop our masterplan."

Asked whether there were funds interested in buying the whole street, he replied: "Yes, that's something we are in talks about."

Although the funds have not been named, the nations with the biggest investment vehicles include the UAE, with £445bn, the Kuwait Investment Authority with £200bn, the Qatar Investment Authority with £60bn and the Investment Corporation of Dubai with £7.5bn. Council officials said the Sultan of Brunei – whose fund is worth around £11bn – was not involved in talks.

Tim Mackay, deputy leader of the economic development committee, said Arab investment funds "are looking to the day that oil runs out and they want projects that can provide a solid income stream".

Property expert Keith Dobson, head of Edinburgh Commercial at Savills, said: "Edinburgh is still seen as a major international investment centre. But the problem with Princes Street is that it has developed in a haphazard nature – historic shops that are twee, but don't fit modern property portfolios – and so it is a complicated buy. As well as big institutional owners there are a lot of small, single ownerships."

Arab investment funds were, however, looking for outlets for their money following oil price rises. "They are looking to invest that cash in foreign countries and the UK has always been seen as a steady investment home. The UK is looking good value for money now."

In recent years, Princes Street has seen its fortunes fade as consumers have opted to shop in out-of-town centres. Retail property values, which were formerly the highest in the UK outside London, have been overtaken by Glasgow's Buchanan Street and by the Braehead Shopping Centre.

The council would like to redevelop the entire street to counter criticism that it is letting a world-class asset wither on the vine.

But a major problem is multiple ownership. Reducing the number of owners from 120 – which range from major London-based and Scottish equity houses to single shops – would simplify the task.

Donald Anderson, a former leader of the council, said: "It wouldn't matter who the owners were, but if there were a smaller amount of owners it would be beneficial. Any investment of that kind would be welcomed."

Insiders believe that under the present ownership pattern, the timescale for a completed sovereign fund takeover would be up to 10 years, as potential buyers would have to track down owners and strike a series of complicated deals.

The most expensive locations are those blocks towards the east end of the city centre, nearest to the development of the St James Centre and of St Andrew Square. Commercial property experts estimate each of the seven blocks along Princes Street could command between £100m and £150m on the open market, leading to a total of around £1.35bn.

Two 'modest-sized' shops – the Orange shop at 133 Princes Street and the T-Mobile store at No 21– are to go up for sale for around £4m each this week.

Even at such figures, major owners, such as Glasgow-based Equitable Life Assurance, London-based Goodman Property Investors, SAL Pension Fund, Axa Equity, Marks & Spencer and Jenners Property Ltd, may be reluctant to sell.

Alasdair Humphery, director of capital markets at Jones Lang LaSalle Edinburgh, said compulsory purchases may be needed.

A spokeswoman for the Edinburgh City Centre Management Group, said: "It's exciting because if this comes off it could well be a great thing for the revitalisation of Princes Street."

Rob Winter, spokesman for the Princes Street Traders Association, said: "If an international investment company were to come along to make things happen and develop Princes Street into a truly world-class destination, then I think we would welcome that."

M&S owns a flagship store on Princes Street, but a spokeswoman said it was "unaware" of any potential Arab suitors.

EYEING UP PRINCES STREET?

The Abu Dhabi Investment Authority is chaired by Sheikh Khalifa bin Zayed al-Nahyan, President of the United Arab Emirates, and has an estimated worth of more than £400bn.

It is the largest single shareholder of Citigroup, the largest American financial services company.

The group manages Abu Dhabi's oil and gas reserves, which account for 95% of the total reserves in the UAE. It also owns a sizeable share of the Arab International Bank.

The Government of Singapore Investment Corporation (GIC) is chaired by Lee Kuan Yew, who was the first prime minister of the former British colony. It is worth £150bn and has string of high-profile investments across the world.

The Qatar Investment Authority, worth £60bn, is headed by chairman and chief executive Sheikh Tamim bin Hamad al-Thani, son of the head of the Qatari ruling family.

It already has a series of major investments in London property with holdings including Chelsea Barracks and One Hyde Park, which is a complex of 82 luxury flats that have sold for as much as £100m each. It also owns 20% of the London Stock Exchange and has reportedly been interested in buying up Sainsbury's supermarket chain.

The Brunei Investment Agency is chaired by Hassanal Bolkiah Mu'izzaddin Waddaulah, the Sultan of Brunei and is worth £15bn. BIA owns property in the US, Japan, and Western Europe

The Kuwait Investment Authority, with £100bn of assets, is the Kuwait's government investment arm and was founded to manage oil funds and its subsequent investments across the globe.

THE OWNERS

Many of the buildings on Princes Street are owned by external investment companies, the most prominent of which include The Equitable Life Assurance Society, Prudential Investment Managers Ltd and F&C Commercial Property Trust Limited. Altogether, these organisations own approximately 85% of the buildings on Princes Street.

The Equitable Trust leases its properties to organisations as diverse as the Scottish Conservative Party and Superdrug, Prudential leases to clients such as Starbucks and Clinton Cards, while F&C mainly owns office blocks. Companies such as Marks & Spencer, Boots and fast-food giant McDonald's own their own premises.

Princes Street was originally named by George III, after his sons.