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Overseas investor interest in the London office market has risen considerably over the past 18 months. The combination of stable yields and the credit of owning property in the European financial centre have kept the prices buoyant in spite of the problems over the same period in the Euro zone.
London has always drawn a significant proportion of international real estate investment and as financial markets worldwide have become somewhat unreliable, London has strengthened its position as an investment safe haven.
Figures released in 2012 show that the influx of foreign money into London’s commercial property market means that this capital now amounts to a third of total European investment transactions. In terms of actual figures, foreign investors have parted with almost £30 bn in buying UK offices, distribution warehouses, and shopping centres in 2012. More specific to Central London, global investment has focused on large office buildings with long leases. This market sector is attractive because of its inclination towards a stable return on investment. Capital appreciation is not necessarily the goal at present.
We are used to seeing corporate and state investors from continental Europe and the US and more recently the Middle East; however, we are now seeing increased interest – and action – from a new player, Malaysia.
2012 saw a flood of City and West End high-value transactions from Malaysia, so much so that it is thought that the country’s investment amounts to in excess of 10% of last year’s market.
Other Asian investors include China, whose sovereign wealth fund is pitted against two of its Asian neighbours to purchase an £800m London office development, 1.1m-square-foot Chiswick Park, currently owned by Blackstone, the US private equity firm. China Investment Corporation and government-backed funds from both Korea and Malaysia are the parties involved. If the deal proceeds, it will be the UK’s highest-value real estate transaction since the financial crisis began.
Tom Lax from Morgan Pryce notes, “if the asking price is met, the sale of Chiswick Park would also be an impetus to Blackstone”. The private equity group bought the property from a consortium of Aberdeen Asset Management, Schroders and Stanhope, not so long ago, at the start of 2011, paying £480m for the site.
Asian investors are therefore the dominant force driving demand and should, this year, overtake the Middle East as the largest buying group. There was in 2012 more than £52 bn of equity-seeking acquisitions, with 80% focused on Central London
China’s sovereign wealth fund entered into its first UK property investment back in 2009 with an involvement in the refinancing of Canary Wharf owner Songbird Estates. Its increased activity indicates that its influence on the capital’s market is set to grow.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.