London has regained its crown as the world’s most active commercial real estate investment market, attracting more overseas capital than any other global city, according to the latest research from global property advisor Knight Frank.
The London real estate market experienced a 33% increase in transactional volumes last year hitting a total of £17bn, with 83% (£14.2bn) coming from overseas capital.
This includes investments from 15 different nationalities in Central London’s commercial market with Middle East investors accounting for 8% of commercial transactions (£1.3 bn).
In 2017, London attracted more overseas capital than any other global city – placing it well ahead of New York and ahead of Paris, Frankfurt, Berlin and Amsterdam combined.
London remains the gateway destination for investors who are looking for liquidity, transparency, high quality stock in large lot sizes and landlord friendly leases.
Top cities for cross-border office investment in 2017
Joseph Morris, Head of Capital Markets, Middle East at Knight Frank commented: “Knight Frank’s Capital Markets Team are currently monitoring £46.1 billion of active capital looking to invest in London this year; up 11% from the £41.5 billion at the same point last year. This money remains dominated by requirements from Greater China, but also shows a substantial interest from other Asian markets including the Middle East.”
“Knight Frank is also tracking extensive ‘latent’ demand that is sitting on the side-lines waiting for any signs of weakness in the market including domestic demand as well as international demand from the European funds and the Middle East. We believe that this should prevent any material price falls, and, indeed, expect that some of this money will start to come forward as it becomes increasingly under pressure to deploy over the course of 2018,” he added.
A key driver for continued global demand for London offices is the attractive relative pricing on offer across the capital.
London assets remain good value on a global basis with prime yields running at 4.25% for City of London offices and 3.5% for the West End.
This remains ahead of not only the major Asian markets, such as Hong Kong at 2.6% and Tokyo at 3.2%, but also most of the key European markets, Paris is now 3.0% and Berlin 3.1%.
Joseph Morris concluded: “Global investors have shown they are willing to dial out the short-term noise in order to buy into the solid fundamentals and relative value available from London real estate and we expect them to continue to do so. As the outcome of Brexit and the current political uncertainty becomes clearer, an improving confidence in the underlying occupier markets will support pricing for both prime and, increasingly, for more opportunistic assets.”