Last year London’s share of the UK’s £60bn commercial volume was close to £20bn – almost half of this came from Asian investors signalling a huge vote of confidence in the London market from the region.
This trend has continued in 2018, particularly in the City where Allsop tracked almost 80% of the £6.35bn City turnover coming from Asian buyers in the first half of the year.
Investors from Hong Kong, Singapore and China have continued to dominate the market this year, with Korea more recently providing significant inward investment into the capital. High transaction and volume levels from these regions combined are a positive sign and signal a huge vote of confidence in the London market.
Three stand out deals are illustrative of the demand for London commercial real estate from the region. Five Broadgate, a recent purchase by Hong Kong ‘old money’ – Li Ka Shing’s CK Asset Holdings, for circa £1bn and achieving £1,364 per sq ft, is only the fifth building to trade at over £1bn in the UK.
In August South Korea’s NPS purchased Goldman Sachs new HQ at 40 Shoe Lane, EC4 for £1.16bn, reflecting a net initial yield of circa 4.1%. Goldman Sachs will lease back the entire office space on a 25-year lease (break at 20 years) and at a rent of around £63 per sq ft. In addition, China purchased five acres at Royal Mint Court EC3 from Delancey & LRC Group for £255m in one of the largest ever owner-occupier deals in the City. The building will house a new 600,000 sq ft Chinese Embassy.
But why is London seeing such demand? Particularly at a time when the UK’s political and economic landscape is in flux?
Asian investors continue to debate – London’s still safe-haven status, legal system and the fact it still offers good value in comparison to other major cities globally are all key fundamental principles driving purchase decisions.
Core office markets in Asia such as Tokyo, Hong Kong and Singapore continue to see exceptionally strong investment demand with net yields in the 2-3% range. Many other global ‘gateway cities’ look attractive but London continues to draw the most interest as for many, US & European laws and taxes are seen as more challenging.
One of the benefits of the London market has also been its political stability, and whilst many believed the outcome of the EU referendum and the ensuing upheaval would have shaken confidence in the UK market, a fall in the Pound has only served to make the UK more attractive to foreign investors. Purchasers from Asia in particular have seen a substantial drop in Sterling against the Yuan, giving these investors a significant discount when purchasing assets in the UK.
The Yuan is now also suffering its own depreciation, partly exacerbated by the US–China trade war. With a weakened Pound and strong US$, coupled by the Hong Kong dollar pegged to the US$ and most of Asian trade denominated in US$, we are seeing investors looking to increase their exposure.
This comes as the world is seeing a 13% increase in billionaires, according to the Wealth-X Billionaire census. Figures by UBS and PwC reveal that Asia is leading the way in this global increase. The region (including India), now has the highest number of billionaires in the world and the UK is on a par with America in educating them. Individually, China tops the list with just under 350 billionaires and one billionaire created in the country every week.
China and the wider region’s burgeoning, highly-affluent middle-class are seeking to grow and invest in assets – whether at home or overseas. The UK market, particularly London, still remains a top destination for capital among these billionaires and millionaires alike, and despite an element of caution, we are likely to see this trend continue throughout the rest of the year.
Various headwinds – trade wars, Brexit and China’s capital control regulations may dampen expectations slightly, however, we are expecting London, and in particular, the City to benefit from continued inward investment from Asia. Investment from Hong Kong’s ‘old family money’ is also likely to continue to dominate the market in the second half of the year, as it did in the first; driven and underpinned by the strong fundamentals behind London’s real estate market.
In the short and long-term, we envisage the outbound capital flow from Asia into global markets to continue, with London the first gateway city outside Asia.
Notes to editor
Allsop has an Alliance with Millennium Group, who are headquartered in Hong Kong and work with Asia-Based Real Estate