£20bn City Office Investments Defy Brexit Concern

Investors spent £20bn on central London offices in 2018 – a third above the long-term average – according to new research. Approximately £12bn of central London office space was bought in the first three quarters of 2018 alone, with the vast majority of investors coming from abroad.

Analysis from Savills shows that over 90% of investment last year came from outside the UK. A growth in demand for commercial space coupled with a comparative lack of new buildings has led to a spike in pre-let deals.

There was less stock on the market in the final quarter of 2018 than in the year preceding, due to lower levels of construction. Subsequently, rent prices for commercial properties in the City of London are now touching as much as £80 per square foot – their highest level ever. The strength of the market has defied the expectations of some that growth would slow down last year amid Brexit uncertainty.

Stephen Down, head of Savills’ central London investment team, notes:

“At the beginning of the year… we thought that both at the occupational and investment level things would start slowing down.”

Instead, investment has continued in line with last year and demand has increased, with Down now projecting “more Korean money in the UK over the course of the next few months.”

London offices remain a ‘secure investment’ for foreign buyers

James Beckham of CBRE asserts that: “Brexit isn’t likely to have a material impact on the appetite to invest in Europe’s only truly global gateway city.”

Investors from Singapore, South Korea, Hong Kong and Spain have all purchased commercial properties in London this year for £500m or more. According to research from CBRE, foreign buyers have invested more than £144.3bn in London’s commercial property market over the past 20 years. The report details that investors were largely from Germany and the US at the start of the millennium, followed by a spurt of Middle Eastern investors between 2009 and 2013.

From 2014 up to the third quarter of last year meanwhile, Asian companies have been dominant among international buyers in the City, spending a total of £56.5bn on commercial property.

Analysts note that London commercial properties present a “secure investment” for foreign businesses, offering ”a relatively attractive yield in a low interest environment.”

20% of European investors focused on UK market

In Europe meanwhile, investors are similarly showing a renewed appetite for the UK’s commercial property market.

In research conducted by Knight Frank, over 20% of 155 European real estate investors surveyed said that the UK is their preferred market for investment this year. European buyers featured heavily in investments made in central London’s commercial property market in the third quarter of 2018.

Chris Bell of Knight Frank summarises that there is “a huge weight of capital to be allocated to European real estate, including an unprecedented level of private equity dry powder, and a growing pool of private wealth.”

Take-up of new offices for 2018 reached a five-year record according to the property company’s research, with deals agreed on 10.8m sq ft of new space in the first nine months of the year. Amongst buyers were major international investors including Facebook, Deutsche Bank and the Chinese government.

Elsewhere, analysts have confirmed that overall investment in West End commercial property is set to reach £7.4bn this year, with interest expected to be especially high amongst European and Asian investors in the coming months.

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