Savills’ analysis of foreign investment in London’s commercial real estate market since the EU referendum has revealed a sharp swing to investment from Asia and the Middle East from Europe and the US.
Asian and Middle Eastern investors have become increasingly active over the past year - attracted by the devaluation of the pound, which has made properties between 10% and 20% cheaper for investors pegged against the dollar.
Asian buyers have spent £5.43bn in London since June 2016, up about 16% on the prior year, and Middle Eastern buyers have increased their investment activity by around 25% to £1.93bn.
However, investment levels from Europe are virtually unchanged at about £3.03bn and US investors have scaled back their investment activity by around 34% to £1.08bn.
Much of the investment in London has been from international buyers whose priority is finding a long-term safe haven for their capital and are seeking out big-ticket trophy assets. In the first five months of 2017 alone, eight £100m-plus properties worth £2.1bn were sold in the West End - the highest volume on record for the five-month period - and in the City, 10 £100m-plus deals were concluded worth £3.05bn.
The £100m-plus deals, including the £1.15bn sale of the Leadenhall Building to CC Land, have typically involved properties offering long-term secure income.
The UK [is] regarded as the gold standard for investors looking for a safe refuge for their capital - Stephen Down, Savills
“We’ve seen a shift since 2016 towards longer-let properties with income security of at least five years, reflecting a widespread appetite for long-term security,” said Stephen Down, head of central London investment at Savills.
“This is a reaction against the wider backdrop of geopolitical uncertainty, with the UK being regarded as the gold standard for investors looking for a safe refuge for their capital.”
This year, 38% of all transactions in London’s City market involved buildings with a weighted average unexpired lease term (WAULT) of more than 10 years, while only 9% involved vacant buildings.
By contrast, in 2014, 13% of deals involved a WAULT of more than 10 years and 21% of all activity involved vacant buildings.
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