Money flowing into London’s commercial real estate sector surpassed a decade-long high in July due to strong appetite from Asian investors, according to new data from Savills.
Global real estate group Savills released data Wednesday showing £2.35 billion ($3.04 billion) was invested in central London commercial property in July, bringing the 2017’s total to £11.5 billion. July was particularly strong due to the £1.28 billion sale of the iconic ‘Walkie Talkie’ building to Hong Kong’s Infinitus Property Group.
The last time that investment in London’s commercial property sector hit £2.1 billion was in March 2007, prior to the global financial crisis. Fund managers warned last month that the European property market — including the U.K. — was showing signs of overheating.
Chris Urwin, head of global real estate research at Aviva Investors, said overseas investors tend to prefer “high quality properties, including ‘trophy’ assets in larger markets, especially London.”
Citing Property Data, Aviva says that overseas investors were responsible for more than 80 percent of transaction volumes in Central London office buildings this year through August 29. According to Savills data measuring total commercial real estate turnover in the City of London during the first seven months of the year, 63 percent was from investors in Asia, with 17 percent from Europeans and 11 percent from U.K. investors.
“London market share is at record highs, and probably reflects London’s attractive pricing relative to other global markets,” said Urwin. Domestic investors, who have been net sellers since 2015, see the market as fully priced, he said, adding that “sterling weakness” may also behind increased sales to foreigners.
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Stephen Down, head of Savills’ Central London investment team, expects restrictions announced earlier in August by the Chinese government to reduce real estate investment from mainland China, according to the firm’s statement Wednesday. But investors from Hong Kong “are likely to continue to be active” albeit with increasingly selective buying criteria, he said.
“We expect there to be more stock coming on to the market as we approach the end of the year as existing owners of investments take profits,” Down added. “Provided these sales are priced correctly, we should see continued strong turnover activity of the next three to four months.”
M&G Real Estate has been working on orchestrating a series of joint ventures between British and Asian investors across the country, confirming in July that it was involved in a partnership between the West Yorkshire Pension Fund and an un-named Asian investor to acquire a prime office site in Central Manchester.
While London remains of interest for Asian investors, some are looking to venture out further to cities such as Birmingham, Bristol, Manchester and Edinburgh, according to Martin Towns, head of capital solutions at M&G Real Estate.
“Since the global financial crisis, we didn’t see a great deal of development in those cities,” he said. “There is a lack of good quality, modern, office buildings and, increasingly, strong occupier demand.”