According to our data, international investors acquired over £2.19 billion of commercial property in Central London in the three months from July to the end of September 2016, accounting for 78 per cent of the total transaction volume (£2.813 billion). Over £695 million of this was Asian capital, with Hong Kong investors being particularly active, while US money accounted for £685 million worth of transactions and European investors spending £482 million.
From a medium to long-term investor viewpoint London looks attractive, accentuated by the devaluation of Sterling and some price discounts meaning entry prices appear 15-20 per cent cheaper than four months ago for certain investors. This has created a perception of opportunity that has placed Central London in the global investor spotlight and, as a result, international investors have been notably active with a weight of money chasing, in particular, core assets with stable income.
In addition, prime yields across the major European centres appear to have converged either side of 4 per cent. However, there is a significant difference when comparing one city with the next. On a like-for-like basis, prime yields in Paris and some of the major German cities are closer to mid-to-low 3 per cents, as opposed to London’s benchmark of nearer 4 per cent. With Central London’s office market balanced between development supply and occupier demand, this level of international appetite is set to continue.
And why not? What has changed for London’s commercial investment market apart from the UK’s decision to leave the EU? Whether we take a soft or hard exit, the UK’s time zone, currency, landlord-friendly leasing structures, English language and market transparency continue to exist. We must be realistic, of course, but with prime commercial investment yields ranging between 3-6 per cent, the asset class compares very well with bond yields even in ‘emerging markets’, where the range is 2-6 per cent. The recent interest rate reduction and Bank of England intervention has made the arbitrage even more attractive, with debt rates at some of their lowest-ever levels.