London is the ultimate marketplace for global real estate investors

Published on 2018-03-28

Overseas investors pour £14.2bn into London office investment
Greater China accounts for 40% of international capital

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.

The London real estate market experienced a 33% increase in transactional volumes last year hitting a total of £17bn, with 83% (£14.2bn) coming from overseas capital. London attracted money from 15 different nationalities, with the key buyer group from Greater China (40%).

Nick Braybrook, Head of City Capital Markets, Knight Frank, commented, “London attracted more overseas capital than any other global city - almost three times more than second place New York, where transactions fell 30 per cent; 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.

“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 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. Active requirements from Greater China are up 75% on last year with a diverse group of investors who have bought, or are looking to buy, London commercial real estate. There was also a sharp increase in interest from Japan, South Korea and Singapore.

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 sub 2% and Tokyo at 3.2%, but also most of the key European markets, Paris is now 3% and Berlin 3.1%.

David Ji, Director, Head of Research & Consultancy of Greater China at Knight Frank, commented, “According to Knight Frank research, Chinese outbound real estate investment actually reached a historically high of USD 43.3bn in 2017. This includes a few record breaking land transactions as well as a large investment in the logistics sector. London attracted money from 15 different nationalities, with the key buyer group from Greater China (40%). London as the British political and economic hub, is also one of the world's most important financial centers. London property offers unmatched product quality, long-term stable growth and return, as well as market depth, liquidity and transparency, making it very attractive to investors.”

Top cities for cross-border office investment in 2017