Silence Please Brexit Doomongers – International Investment in the UK Remains Strong

Sensationalists would lead you to believe that the vote has triggered a collapse in the London property market and that distressed buildings are being transacted at discounted prices. Not so it would seem.

Industry evidence highlights that London remains a core target for foreign capital. Since June 23rd, investor groups from Hong Kong, China and Singapore have placed their options in the UK capital. Middle Eastern buyers have also returned with new vigour, with Qatari buyers purchasing the 5 King William Street and the Sony HQ building in the wake of the Brexit vote.

Middle Eastern investors spent €24bn (£21bn) on property outside the region last year as second-generation family members within family-owned businesses sought to diversify wealth outside their country of origin.

Property agents have since observed a shift in favour of more agile private investors and corporates seeking to make the most of currency shifts.

Jassim Alseddiqi, chief executive of Abu Dhabi Financial Group, says his company — which has £2bn of developments already under way in London — will look to acquire further London sites as potential rivals may be put off by the prospect of Brexit.

ADFG, a privately owned group that includes investors from the Abu Dhabi royal family, plans to bid on Hyde Park Barracks in Knightsbridge, a prime London site that the Ministry of Defence is seeking to sell.

Mr Alseddiqi says he has also seen greater interest from Gulf buyers in the group’s homes in London since the referendum, with inquiries up 25 per cent.

“There is a huge demand now among Gulf Cooperation Council, dollar-based buyers,” he says. “If you would have asked Gulf visitors to London when they first knew that the UK was part of the EU, they would have said at the time of the vote. It is very irrelevant to them.”

Asian buyers — many of whom entered the UK real estate market after the 2008 financial crisis — have also been seeking to buy post-referendum. As markets gyrated in the week following the June 23 vote, Hong Kong-listed Magnificent Real Estate bought a Travelodge hotel in King’s Cross from Henderson Global Investors for £70m on June 29. The deal had been under negotiation before the referendum, but Magnificent chose not to pull out.

William Cheng Kai-man, chairman of Magnificent, said the uncertainty surrounding the vote had “provided the company an ideal opportunity to get into the high-demand hotel sector in London, and the falling currency has made the deal more attractive.”

Another City office, at 160 Aldersgate Street, is under offer to an overseas private investor, while the Singaporean property developer Hoi Hup Realty — which bought its first UK holding in 2015 — has made an offer to buy an office block at 63 Queen Victoria Street for more than £30m, according to people familiar with those deals.

While the central London market has certainly witnessed a renewed level of interest post-23 June, activity in the UK’s regional markets both before and after the referendum vote has also been strong. The search for better returns has led to geographical diversification outside London.

As such, capital from Canada, the US, Singapore, Malaysia, India, Hong Kong, South Korea, China, Australia, Norway and Germany has been deployed across UK regional markets in 2016 in all sectors, highlighting the rest of the UK’s growing appeal to international investors. In many cases, these international investors are active, often with a local/UK-based asset manager as their partner. Strong levels of demand have led to an increasingly diverse ownership map across our high streets, which in turn results in new retailers arriving in the UK.

The UK’s regional office markets offer relative value in comparison with London as well as being in short supply, which has pushed up demand. Meanwhile, the logistics sector is as vibrant as ever, led by international demand and a healthy occupier market. Indeed, CBRE’s benchmark UK logistics index shows that total return for logistics for H1 2016 was 4.4%, outperforming the wider industrial sector and all UK property collectively.

Central London retail meanwhile, traditionally the home for high-net-worth individuals from overseas, retail dynasties and sovereign wealth funds, has continued in this vein while international demand for high-street retail in major UK centres has also increased. Retail investment hit £1bn by Q2 2016, outstripping the £700m first-half average of recent years. Prime bidders are not going to go away - not while there's a Brexit 'Reframing of Opportunity'.