Prime central London property has long been considered one of the most desirable asset classes in the world and is widely held aloft by international investors, and for good reason. An investor with foresight 40 years ago to invest in the current London market would have increased the value of their property 50-fold.
As it stands, the rest of the UK commercial property market is mostly influenced by domestic investors and occupational demand. London on the other hand is much more susceptible to changes in international demand and if the vote to leave the European Union were to deter this sort of investment, the repercussions for the capital would be significant.
Positively, the first six months of 2017 have seen £8.8bn worth of investment go into London’s housing and commercial market. As much as half of all these deals have been from Asian stakeholders and account for more than £4bn worth of investment. Both the Leadenhall building, which sold for £1.15bn, and One Kingdom Street, sold at £292m to Hong Kong investment vehicle’s, signify confidence in London after the vote.
As well as this, of the seven major deals completed worth more than £200m in the City of London, German investors were responsible for four. This might prove to be the most interesting development of all, as a Knight Frank study revealed that only 16.5 per cent of buyers in the Prime London market had previously been from EU countries. This suggests that the devaluation of the pound might be a bigger draw to investors than EU membership was before.
Looking ahead, if sterling remains weak against world currencies, especially the dollar and euro, it will be particularly good news for developers of high-end London properties as it will continue to boost overseas investment while the exchange rate works in their favour.
The huge increase in investment, up 18.5 per cent from £7.45bn in 2016, also suggests foreign investors are banking on the long-term recovery of sterling. Activity from Asia-Pacific investors is at a five-year high and should the pound recover once the period of Brexit uncertainty is completed, global investors will once again enjoy a favourable rate of return when they cash in on their investments.
Current low interest rates and a low supply of housing makes the British market more resilient to external shocks such as Brexit and most experts’ project house prices will continue to rise in the coming years.
The remaining uncertainty will be around the role of London as Europe’s financial capital and the exodus of business, and people, to other markets such as Frankfurt, Dublin or Paris. The finance sector’s importance to UK economy means it is unlikely to be overlooked and will undoubtedly be at the centre of the UK’s Brexit negotiations.
What these huge increases in investment show is confidence from the rest of the world that the UK will achieve just that. The price change in the pound, while not the sole reason for new investment in London, has helped with confidence issues and reignited foreign investment, showing London will continue to provide the positive setting for business and investment after Brexit that it did before.
Reditum Capitalis a global Mezzanine and Bridging finance provider for commercial and residential real estate and has arranged over £350m of funding for transactions across the UK, Europe and the rest of the world since its inception in 2013.
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