Foreign buyers invested £14.6 billion in London's commercial property market last year, accounting for 70 per cent of the total £21 billion invested. US buyers spent most, investing £3.4 billion. Chinese buyers spent £2.2 billion and Qatari buyers £1.2 billion. The top two commercial investors are likely to be the same this year.
Debt is a significant factor in drawing in these international buyers: falling swap rates and competition between lenders is making borrowing cheaper. There is also a genuine confidence in the strength of the occupational market with rents steadily rising. These pull factors are further boosted by push factors, such as better returns in the property market than in the bonds markets, and some economic instability in other parts of the world.
US investors, including Blackstone, Kennedy Wilson and Hines, secured some of the larger deals, among them Alban Gate, 111 Buckingham Palace Road and 25 Cabot Square. Northstar entered the UK for the first time, purchasing a property in Woking before going on to purchase a €1.1billion portfolio which included four assets in London.
Investors from China were mainly developers and insurance companies. China Life was one of last year's biggest new entrants with its deal at 10 Upper Bank Street, while developers such as Shanghai Greenland, Ping An Trust and China Overseas Land Investment all purchased properties, with more activity anticipated.
According to Savills Chinese Capital Markets Specialist Eric Zhao, the top Chinese developers are being driven by challenges in the domestic market and global branding needs, while insurance companies are beginning to diversify their huge capital outside China after the restriction on overseas investment was lifted by the regulator. 'We have already seen the top Chinese firms make a statement in London and we are expecting more to follow," says Zhao.
Other new entrants to the London markets include buyers from Taiwan, Turkey, Singapore, Israel and Yemen. There has also been a rise in private investors, and not just in smaller lot sizes: Savills sale of The Gherkin to the Safra family was the most significant of the larger private investor transactions, but there were other large transactions by private investors from China, Spain and Hong Kong.
Stephen Down, Savills head of Central London, comments: “While further in-flight of capital will keep turnover levels high, very few of the international institutional type investors have demonstrated a willingness to go to the initial yield levels that have been seen on the UK prime assets, such as 30 St Mary Axe and the Rio Tinto HQ at 6 St James’ Square, at 4 per cent or lower. Whether they will go to these levels depends on further rental growth coming through in the prime areas in particular but at the moment the threshold for Chinese investors seems to be no lower than 4.5 – 5 per cent."