According to Knight Frank’s The London Report – 2017, the Central London property market has witnessed significant capital inflows since the referendum, despite an initial pause for breath. For London real estate, the shift towards a wider world of occupiers and investment capital is at an advanced stage. Last year, 73%1 of transactions involved an overseas buyer compared to 65% in Singapore , 40% in New York2 and 33% in Paris2.
A key theme for the market over the last few years has been the rise of the Chinese buyer, whose overseas investment appetite has grown exponentially. While capital controls have been put in place in China to control outflows, Knight Frank expects Chinese investment into London to continue in 2017, although it may slow as overseas reserves are depleted and mechanisms of getting capital out of the country are restricted.
Paul Hart, Executive Director of Knight Frank Greater China, says, last year we have seen both mainland and Hong Kong investors continue to make substantial investment into Central London’s office market despite Brexit uncertainties. Of this investment which was worth £2.9 billion, Knight Frank helped to close circa £1 billion out of nine deals. Significant players include developers and conglomerates such as HNA Group, Fosun Group and Chinese Estates.
David Ji, Director and Head of Research & Consultancy, Greater China, says, while Chinese capital controls may present some problems for firms that have limited overseas exposure, investors who have substantial offshore investments will continue to acquire real estate assets in stable locations that provide good long term prospects.
It is worth mentioning that last year we have seen Hong Kong based investors making substantial investment in London as they do not have to worry about capital outflow controls like their mainland counterparts. They are also nimble enough to capture investment opportunities at various stages of the market cycle. These investors, including some prominent developers and families as well as Chinese investors who have established a strong presence in Hong Kong. We see that these Hong Kong based investors will continue to be active in the British capital this year.
Commercial real estate prevails
- London’s success as a business location saw £9.3 billion of overseas money invested in Central London offices in 2016, out of which 80% were from outside of Europe.
- China and Hong Kong were the largest sources of foreign investment into Central London offices, accounting for £2.9 billion or 31.2% of total overseas investment.
- Investment arising out of rest of the Asia-Pacific made up £1.0 billion or 10.8% of total overseas investment.
Office take-up in Central London for the final quarter of 2016 totalled 3.6 million sq ft, the highest since Q3 2015, 14% above the long-term average and driven by strong activity across the whole market.
Seven of the ten largest occupier deals in 2016 were to overseas corporations, particularly from North America, which is the same as in 2015.
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1 Knight Frank
2 Real Capital Analytics