Azerbaijan pays $286m for first European property

LONDON Mon Dec 17, 2012 8:26am EST

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LONDON Dec 17 (Reuters) - Azerbaijan bought a central London office block for 177 million pounds ($286 million), its debut property deal in Europe that underlines the safe investment appeal of the continent's top real estate.

The country's $33 billion state oil fund bought the 188,600 square foot building in the upmarket St James's district from RREEF Real Estate, the property arm of Deutsche Bank, the German bank said on Monday.

The building, which is let to banking group HSBC until 2023, gives an investment yield of about 5.4 percent.

Azerbaijan, an oil-producing nation sandwiched between Russia and Iran on the western coast of the Caspian Sea, is also in the process of buying the Actor Gallery shopping complex in Moscow for $102.5 million, data from research company Real Capital Analytics (RCA) showed.

Sovereign wealth funds from Qatar, Malaysia and Norway have spent billions of pounds on offices and shops in central London in recent years, seeing it as a safe place to park money given Britain's relatively stable political and legal climate, which has helped buoy prices for the most sought-after commercial property.

The list of countries buying European real estate was likely to grow, said Joseph Kelly, RCA's director of market analysis.

"There's a lot of emerging market investors like Brazil and Malaysia that are looking at Europe to put their money after making it in their home countries."

The St James's area of London is popular with hedge funds and private wealth managers and its office rents of 100 pounds-plus per square foot are among the highest in the world.

Newly wealthy Azerbaijan has spent millions of dollars building skyscrapers in its capital Baku in recent years in a bid to modernize its image since becoming independent in 1991.

It hosted the Eurovision song contest in May and is planning to build the world's tallest building at over 1 kilometre in height.

Qatar was the top sovereign wealth buyer of European property in the 12 months through August, spending 3.5 billion euros ($4.6 billion) on eight deals including the London Olympic athletes' village and a mall on Paris' Champs Elysees, RCA data shows.

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