Qatar Investment Authority (QAI) has a small real estate team by comparison with other major sovereign wealth and pension funds — but, as demonstrated by last week’s audacious £2.2bn bid to wrestle control of the Canary Wharf Group (CWG) from Songbird, it has big ambitions.

It has invested more than any other sovereign wealth fund in London over the past three years, according to Real Capital Analytics, splashing out £3.99bn on some of the capital’s most iconic developments including the Shard, the Olympic Village and Chelsea Barracks. In the process, it has built up a reputation. “They’ve got a distinct style, different from other sovereigns,” says one investment banker. “It’s trite to say they have a predisposition to trophy assets, but they’re happy to do fewer, larger deals, very special deals.”

The Qataris are less concerned about building carefully balanced portfolios with perfect asset allocation, he says, and more driven by special opportunities. So what is driving their interest in Canary Wharf?
In many ways it is a classic Qatari deal. Acquiring Songbird and thereby gaining control of Canary Wharf Group (CWG) would give the Qataris and their co-bidders Brookfield Properties a prestigious portfolio of 7.4m sq ft, worth £5.5bn. It would bring with it a substantial development pipeline, including the giant Wood Wharf residential scheme, which will add 3,000 new homes to the site, and the considerable asset management and development expertise within the group.

It could also be a shrewd way for QAI to deploy a large amount of capital. As demonstrated by the sale of the Gherkin at a yield of 3.8%, big and high quality assets and portfolios aren’t going cheap and taking a publicly listed company private could therefore be an effective strategy. Analysts have tipped an increase in M&A activity for this reason. Jefferies analyst Mike Prew wrote two months ago: “We think REITs are cheaper than real estate, which could lead to corporate activity.”

Acquiring CWG could also prove a stepping stone to consolidation of the whole estate. Given that the Qataris are also looking to buy the HSBC Tower for £1.1bn, this could be a long-term game plan, suggests Prew. “If successful in their bid for Songbird, it wouldn’t be a surprise to see the Qataris pick off other assets at Canary Wharf and try to consolidate the whole estate. The estate as a whole could be worth more than the sum of its parts.”

Excluding the HSBC Tower, there is getting on for 7m sq ft of space at Canary Wharf not owned by CWG, according to data commissioned by Property Week from Property Data (see above). Over the years, the company has sold off this space in a series of deals, totalling some £4.5bn, to re-invest in new projects and firm up its balance sheet.

Based on the sales price for the HSBC Tower, it could end up costing almost £7bn to buy all this space back. There are also more than a dozen different owners to negotiate with, including two owner-occupiers in KPMG and JP Morgan, as well as Asian investors such as Said and Nan Fung and a number of big US real estate players like Blackstone and Hines.

Space at Canary Wharf sold by CWG

AddressSq ftCurrent ownerPrice CWG sold at (£m)Date sold
5 & 25 Canada Square1,740,000St Martins Property (5) 25 Canada Square (25)1111.9Jan-04
10 Upper Bank Street1,000,000China Life Insurance Co (70%) / Qatar Holdings (20%) / Canary Wharf Group (10%)795Jun-04
15 Westferry Circus175,000Canary Wharf Group131.75Mar-05
20 Canada Square555,000Brookfield Office Properties337.5Mar-05
17 Columbus Courtyard198,000Vico Capital agreed a £107m refininancing with MetLife (01/11)120.5Sep-05
1 & 7 WestFerry Circus380,000Hines (1) Canary Wharf Group (7)206.445Nov-05
25 North Colonnade362,500Blackstone Real Estate191Dec-05
20 Churchill Place349,000Prudential Retirement Income199.5Feb-06
15 Canada Square400,000KPMG260Nov-06
30 North Colonnade320,000Fimalac / Hearst Corporation290Jul-07
5 Churchill Place314,000Said Holdings208Jan-10
25 Bank Street1,000,000JP Morgan495Dec-10
50 Bank Street220,000Nan Fung Development153.5Sep-14