Some experts believed that the UK’s decision to vote to leave the EU, would damage London’s commercial property sector. The theory was that overseas investors, who are critical to the market, would begin to shy away from London, as it would no longer be able to serve as a springboard to the EU. New figures have shown Richard Carr that this theory does not seem to hold water.
In the aftermath of the referendum, the value of the British Pound dropped to its lowest point since the 1980s. Prime Minister Theresa May recently announced that the UK will adopt a ‘hard Brexit’ policy, potentially cutting it off from the EU’s single market and costing the UK up to £66bn per year. After this, the value of the Pound dropped to a lower point against the dollar.
This has been good for foreign investors, as they now receive more Pounds for their currency, increasing their buying power. A recent report from Arcadis suggests that current market conditions are great for overseas players looking to invest in London’s commercial and residential property sectors. Figures from Savills shows that investors are now flooding into London’s commercial real estate market.
Industry portal Property Investor Today reports that during the past three months, overseas investors comprised 78% of commercial real estate bought in Central London. Savills attributed this to price reductions and the dropping Pound. When currency devaluation is taken into account, some London commercial property prices have decreased by as much as 20% within the past three months.
Further analysis indicates that over £695m of this capital came from Asia, with Hong Kong-based investors proving particularly active. Meanwhile, US and European investors accounted for £685m and £482m of commercial property purchased in Central London respectively. It is important to note that within the same time frame, UK property bought by international investors rose to 78% of total volume, increasing from 57.8% during the prior quarter, to hit £2.813bn worth of transactions overall.
Perception of opportunity
Commenting, Savills’ Head of Cross-Border Investment, Rasheed Hassan, said that falling commercial property values “has created a perception of opportunity that has placed Central London in the global investor spotlight and, as a result, international investors have been notably active with a weight of money chasing, in particular, core assets with stable income.” According to Savills, Central London’s office sector is particularly attractive to foreign investors, due to high demand and limited supply.
Elaborating, Hassan said: “We must be realistic of course but with prime commercial investment yields ranging between 3-6%, the asset class compares very well against bond yields even in emerging markets, where the range is 2-6%, and the recent interest-rate reduction and Bank of England intervention has made the arbitrage even more attractive, with debt rates at some of their lowest-ever levels.”
Savills’ report further shows that dire forecasts concerning the trajectory of the UK’s property market post-Brexit are proving unfounded. Richard Carr strongly believes that the UK’s property market is underpinned by robust fundamentals, so it has the ability to attract global investors, whatever the current climate. London is a global business hub, so foreign investors are keen to snap up office and retail space in the city post-Brexit, when they can use their greater purchasing power to reap great value.