London has regained its crown as the world’s most active commercial real estate investment market, attracting more overseas capital than any other global city, according to the latest research from global property advisor, Knight Frank.
A key driver for continued global demand for London offices is the attractive relative pricing on offer across the capital. London assets remain good value on a global basis, with prime yields running at 4.25% for City of London offices and 3.5% for the West End.The London real estate market experienced a 33% increase in transactional volumes last year, hitting a total of £17 billion, with 83% (£14.2 billion) coming from overseas capital. London attracted money from 15 different nationalities, with the key buyer group from Greater China (40%).
“London attracted more overseas capital than any other global city - almost three times more than second place New York, where transactions fell 30%, and more than Paris, Frankfurt, Berlin and Amsterdam combined. London’s appeal - liquidity, transparency, high quality stock in large lot sizes and landlord friendly leases - is clearly undiminished,” says Nick Braybrook, Head of City Capital Markets, Knight Frank.
“At £7.2 billion, London ‘exported’ more commercial real estate to China than it did cars, pharmaceuticals and machinery combined. In fact, if it was considered an export good, commercial real estate would be the UK’s single largest export to Greater China, and equivalent to 50% of total UK exports to that region. There is no sign of investment demand for London letting up. While Brexit will cause periods of uncertainty, global buyers of London real estate will continue to transact.”
Knight Frank’s Global Capital Tracker is currently monitoring £46.1 billion of active capital looking to invest in London this year, up 11% from the £41.5 billion at the same point last year. This money remains dominated by requirements from Greater China, specifically Hong Kong, but also shows a sharp increase in interest from Japan, South Korea and Singapore.
Active requirements from Greater China are up 75% on last year, with billionaires being a key group who have bought, or are looking to buy, London commercial real estate. Of the top 20 billionaires on the Hong Kong rich list, nine have bought commercial assets in London before 2017, three more bought in 2017 and there are four more looking to buy now.
“At Knight Frank we are also tracking extensive ‘latent’ demand that is sitting on the sidelines waiting for any signs of weakness in the market, including from German funds, the Middle East and domestically. This will insulate the market against any potential material price falls, and over the course of 2018 will have to come forward as it becomes increasingly under pressure to deploy its money,” says Braybrook.
A key driver for continued global demand for London offices is the attractive relative pricing on offer across the capital. London assets remain good value on a global basis, with prime yields running at 4.25% for City of London offices and 3.5% for the West End. This remains ahead of not only the major Asian markets, such as Hong Kong at 2.6% and Tokyo at 3.2%, but also most of the key European markets, Paris is now 3% and Berlin 3.1%.
“Global investors have shown they are willing to dial out the short-term noise in order to buy into the solid fundamentals and relative value available from London real estate, and this will continue,” says Braybrook.
“As the outcome of Brexit and the current political uncertainty becomes clearer, an improving confidence in the underlying occupier markets will support pricing for both prime and, increasingly, for more opportunistic assets.”
Top cities for cross-border office investment in 2017:
1. Central London at £14.2 billion
2. New York at £5.1 billion
3. Frankfurt at £4 billion
4. Berlin at £3.2 billion
5. Paris at £2.8 billion
6. Amsterdam at £2.6 billion
7. Washington DC at £2.3 billion
8. Houston at £2.1 billion
9. Helsinki at £2 billion
10. Singapore at £1.7 billion
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