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Overseas investment continues to dominate

Despite political and economic uncertainty, international capital continues to dominate the Central London office market.

Despite political uncertainty, it is expected that international capital will continue to invest in London real estate opportunities in 2019.

Julian Sandbach, JLL UK

We have seen international investors continue to dominate the Central London investment market in 2018, accounting for over 79% of all transactions.

Asian money remained particularly active and this bloc continues to account for the largest allocation of foreign capital, standing at 45% for 2018.

Sentiment amongst the majority of overseas investors suggests that whilst they feel London is subject to some short-term uncertainty, and therefore potential volatility, the long-term prospects for London as a global gateway city with secure investment fundamentals remains unchanged. London again saw over 79% of all capital originate from overseas in 2018.

Despite the purchase of 5 Broadgate, EC2, for £1 billion by CK Asset Holdings, the volume of inbound Hong Kong capital significantly reduced in 2018 from the £6 billion invested in the previous year. The slack has been principally taken up by Korean and Singaporean investors who view London as an attractive long-term investment destination.

Investment from Europe

European investors, particularly from Germany and Spain, also retained their presence last year with substantial acquisitions of landmark buildings, namely The Adelphi, WC2 (£550m), and Verde, SW1 (£455m).

We advised AXA Investment Managers, on behalf of a consortium of investors, on the disposal of Ropemaker Place, EC2, to Singaporean REIT, Ho Bee Land for £650 million. Ropemaker Place is a landmark 605,000 sq ft office development in the core of the City of London, close to the new Crossrail station at Moorgate. The multi-let asset is the London headquarters of high profile tenants including Macquarie Group and MUFG Bank.

Another notable deal of 2018 included the acquisition of 160 Great Portland Street, W1, for the Qatari royal family’s private property company, Alduwaliya Asset Management, for £127 million. Alduwaliya acquired the building off Great Portland Estates, the asset comprises a 92,000 sq ft office building let to visual effects company Double Negative until May 2032. 

Looking forward

Despite political uncertainty, it is expected that international capital will continue to invest in London real estate opportunities in 2019. Whilst there may be some caution prior to the final resolution on the Brexit negotiations, it is widely anticipated that investors will take a longer term, and positive view on the UK.

Market fundamentals remain sound, with occupier demand continuing at above long-term average levels, maintaining the low levels of vacancy being witnessed across offices in Central London. London’s development pipeline is forecast to reduce significantly post 2020, reducing the quantity of new space being delivered to the market and placing further pressure on supply.

The composition of the investors in the market will continue to be diverse, with continued strong weighting towards Asia. After a period of dis-investment there are signs that domestic investors are increasing their appetite.

In Japan, under-allocation for real estate in insurance and pension funds has seen a push for investors to diversify outside of the country. The Japanese Government Pension Investment Fund and the Development Bank of Japan have the resources to join those already active in the UK.

This article was written by Julian Sandbach