Investors from Asia Pacific are set to pour funds into post Brexit-Britain, taking advantage of a depreciated pound following the trigger of Article 50 to withdraw the UK from the European Union.
Research from JLL shows that the depreciation, compounded by slight drop in capital values, has seen UK commercial real estate discounted by an average of 16 percent to overseas capital relative to pricing since the June 2016 vote.
While, historically, the UK has not seen a strong correlation between currency movements and overall capital, the strength of private investors from Asia Pacific, particularly Hong Kong and mainland China, responding to the most recent movements has caused demand to rise in the real estate market.
The impact has been felt most in the Central London office market, where private investors from China, Hong Kong and Singapore are competing for the largest lot sizes, with an average deal size of around £121 million. This is compared to investors from the Middle East who, traditionally, prefer smaller lot sizes with an average deal size of £55 million.
“Private investors have responded to the recent depreciation more than institutions and global asset managers, becoming an increasingly important driver of market sentiment and pricing,” says Stuart Crow, Head of Asia Pacific Capital Markets. “Despite the triggering of Article 50, as 2017 progresses we expect global funds and institutions to return their focus to the UK, in response to relatively attractive pricing and expected resilience among corporate occupiers. Speaking to our institutional clients in this region, many of them are actively looking for opportunities in London.”
Alistair Meadows, Head of UK Capital Markets at JLL reveals that Chinese investors will have an increasing influence on the UK market. “Many investors from China and the wider Asia Pacific region are attracted to the depth, liquidity and familiarity of the UK market and come seeking diversification and safe haven forms of investment.”
Foreign investment accounted for 48 percent of transactional activity within the UK market in 2015 and a slightly higher 51 percent in 2016, the likely impact of currency movement. Asia Pacific and European (ex. UK) based investors increased their investment, with the Asia Pacific share rising from 17 percent to 28 percent, and Europe from 14 percent to 23 percent.
This is in contrast to investment inflows from the Americas (primarily the U.S.), which decreased from 32 percent of total overseas investment into the UK to 17 percent in 2016.
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