London RE market sees surge of Asian capital

Asian investment into the London property market has risen significantly over the past two years, partly driven by investors seeking to reallocate money from their domestic market – and attracted by the larger market, fewer restrictions and long-term security offered by the city.

In the past month alone, two Asian investors have announced high-profile single-asset deals in London. The Singaporean traded real estate investment and developer Ho Bee Land acquired London skyscraper Ropemaker Place from AXA Investment Managers-Real Assets for £650 million ($862 million; €737 million)  earlier this month. Also this month, CK Asset Holdings acquired 5 Broadgate for £1 billion ($1.3 billion; €1.1 billion)

Asian capital’s share of overall London office investment has surged from 23 percent in 2015 to 42 percent in 2017, according to CBRE data. Meanwhile, Asian investments into London offices hit a record £3.39 billion ($4.5 billion, €3.85 billion) or 70 percent of all London office transactions during the first half of 2018, according to real estate services firm Savills. Asian capital contributed more than £3.52 billion ($4.67 billion, €3.99 billion) of total real estate transactions in London during the second-quarter of 2018, the highest such activity Savills reported since 2007.

Year to date, Asian investors have completed the most property deals in the London metro area after domestic investors, according to Real Capital Analytics. The data provider recorded 129 single asset deals in London, of which 93 were cross border.

Since the start of 2018, Hong Kong capital has accounted for 31 percent of Central London real estate investments, according to CBRE data. Capital from Singapore was the second most active out of Asian investments, at 10 percent.

Investors from mainland China were much less active as a result of Chinese regulators restricting capital outflows, according to Andrew Thomas, head of international capital markets at Colliers International. Chinese capital accounted for 6 percent of Central London real estate investments this year, according to CBRE data.

South Korea and Japan accounted for 8 percent and 2 percent of Central London investments respectively according to CBRE data. Japanese investors continue to be active in the UK, but their investments tend to be around Manchester rather than London, said James Beckham, head of London markets at CBRE Group.

Asian investors may be taking a greater interest in the London market as they reinvest money they have made from price and rent appreciation in their own home markets.

“For certain assets, deals get concluded in key gateway cities and then capital gets replaced in other key gateway cities,” said Thomas. “So capital released from sales in Asia often is reinvested in London.”

The purchase of 5 Broadgate last week was a classic example of Hong Kong capital being reallocated to London, he said. CK Asset Holdings acquired the UBS headquarters building using a portion of the money earned from the sale of The Center, a landmark office tower within its Hong Kong portfolio. The Hong Kong conglomerate sold The Center last year to a mix of mainland Chinese and Hong Kong investors for HK$40.2 billion ($5.12 billion; €4.38 billion) in the world’s most expensive single-asset sale.

In Hong Kong, office rents driven by an active leasing market and low vacancy rose 1.1 percent month over month in the overall market in April, its fastest monthly pace in two years, JLL reported. 2017 RCA Commercial Property Price Indices showed Hong Kong commercial property prices reported the strongest growth among major global commercial real estate markets while CBRE’s Hong Kong office index showed values soaring starting in 2016.

Asian investors may also be pursuing deals in London because their own domestic markets are fully invested, according to Beckham.

“Their own markets are relatively small compared to other gateway cities given the scale of Singapore and Hong Kong,” Beckham said. “Private investors are therefore diversifying their wealth into a range of global markets.”

London can be particularly attractive as the city places fewer restrictions on overseas buyers, who may see investments in the city as a source of long, sustainable income even after Brexit, according to Thomas. Currently there are no restrictions on foreigners owning property in the UK. In comparison, Prince Edward Island in Canada requires non-residents to get permission to buy more than five acres of property.