London has the most active commercial real estate market for global cross border capital despite Brexit with Asian investors in particular snapping up assets, new research has found.
Overall some £5.6 billion was invested in London in first half of 2018 with the next highest in Hong Kong at £5 billion, followed by Paris at £1.9 billion.
Asian investors dominate and accounted for £4.4 billion or 65% of investment of which Greater China led the way with £2.6 billion or 38%. There was £1.8 billion or 27% from other Far Eastern nations, with £906 million of that from Singapore and £790 million from South Korea.
The report from international real estate firm Knight Frank says that London leads the way as the favourite destination for global capital as there is a significant, and growing, weight of cash targeting real estate as an asset class.
The money derives from a range of investors that spans global institutions, to equity funds, to private capital, all of which value the ability to deploy capital in large lot sizes which London’s commercial real estate offers.
‘Despite the political turmoil surrounding the UK with Brexit, London is once again the most liquid real estate market in the world. It is more popular as a home for international investment than Paris Central, Manhattan, Munich and Frankfurt combined,’ said Nick Braybrook, head of capital markets London, Knight Frank.
‘Asian real estate investors continue to be the largest and one of the most important global capital exporters with South Korea and Singapore more active than previously. The largest five deals in the market this year have all involved Asian capital and this trend looks set to continue for the foreseeable future,’ he added.
The top commercial property deals in London in the first half of this year included 5 Broadgate in EC2 form £1 billion, Ropemaker Place, also in EC2 for £650 million, 40 Leadenhall Street in EC3 for £360 million, 20 Old Bailey in EC4 for 3341 million and Regents Quarter in King’s Cross for just over £300 million.
The report points out that stability, transparency, and liquidity remains the compelling destination for international capital and London fits the bill. Indeed, Knight Frank’s recent global Wealth Report shows that many ultra-high net worth individuals rank London as their first port of call for their maiden overseas property investments.”
‘As a home for international capital London increasingly enjoys another benefit over its global city competitors, in the form of relative value. One corollary of rising demand for European real estate is that capital has been funneled into continental markets that are traditionally nowhere near as liquid as London, and this has quickly led to exceptionally low yields. Indeed, 3% is a common prime yield across many European cities, not just capitals,’ said William Matthews, head of capital markets research at Knight Frank.
‘In a comparative sense at least, London office prime yields can therefore seem good value to overseas investors, particularly given prospects of modest rental growth, and the recent movements in Sterling, which provide an added currency advantage,’ he pointed out.
‘Longer term, this could prove the right mix of attributes to attract global capital targeting Europe, a significant proportion of which comes from experienced overseas investors who are less singularly focused on capital preservation and value the prospect of comparatively healthy income returns,’ he concluded.