Two-thirds of the total £4.8bn invested in London offices between July and September came from Asian buyers © Bloomberg
Asian investors channelled record amounts of cash into London office deals in the third quarter of this year, as overseas cash flows rapidly into the market since the Brexit vote.
Two-thirds of the total £4.8bn invested in London offices between July and September came from Asian buyers, according to figures from property services company CBRE. More than 90 per cent of all commercial property transactions in the city during the period involved investment from overseas.
The average proportion of foreign investment in London offices each quarter since the second half of 2016, following the UK’s vote to leave the EU, has been 65 per cent. The average figure since the beginning of 2010 has been about 60 per cent, according to historic CBRE data and Financial Times’ research.
Robbie Duncan, analyst at Numis, said the fall in sterling following Brexit has made assets more attractive to overseas buyers.
While many overseas investors would be looking to buy property to diversify their portfolios, Chinese and Hong Kong investors may also be aiming to park capital in the UK, Mr Duncan said. “It’s a diversification trade, it’s to try and take as much cash out of the country,” he said.
Chinese investors fear greater capital controls being forced on them. In August, the government implemented regulations targeting “irrational” investments in overseas sectors including property. Although Hong-Kong companies are not subject to these curbs, many fear the impact of potential Chinese market instability and so are moving cash.
High-value deals also characterised the market, according to CBRE, with 11 transactions worth more than £100m taking place over the quarter, compared with five in the same period last year.
One unusually large sale was included in the third-quarter numbers. Landsec and Canary Wharf Group, both UK property companies, sold the “Walkie Talkie” skyscraper to Hong-Kong-based oyster sauce maker Lee Kum Kee in July for £1.3bn, in the largest ever single building transaction in the UK.
Stephen Pearson, head of City capital markets at CBRE, said the figures demonstrated that overseas investors “still find London attractive” because UK commercial property offered relatively good income in the context of a robust legal system. “London is a safe place to put your money,” he added.
“This is all part of the globalisation we have seen. If you talk to a sovereign wealth fund, it will tell you it needs to be spread and diversified and in major cities around the world.”
UK investors dominated the sell side, accounting for about two-thirds of sales during the quarter, according to CBRE.
Mike Prew, analyst at investment bank Jefferies, said there was a pattern of domestic owners selling to overseas investors who may be less familiar with the market, with another £10bn of London offices shortly coming to market.
UK commercial property values were factoring in “undeliverable growth rates”, said Mr Prew. “We have been expecting a rental recession for over two years,” he said, describing his position as “uniquely bearish”.
However, Mr Pearson argued that much of the overseas money pouring into London was coming through sophisticated investors. “Some of these people own conglomerate businesses and they are globally connected, astute and savvy,” he said. “Only time will tell whether they are right or not.”