The Market

While the IMF’s recent comments about the UK’s economy has helped to boost confidence, London is recognized as one of the largest, most dynamic cities in the world and offers a wide variety of investment opportunities. Real estate represents an attractive destination for international investment relative to other asset classes. Increased international investments have been driven by sovereign wealth funds, government pension funds, private capital, etc. The UK, particularly London, is seen as a safe haven and has benefited from:

  • the flood of capital from more volatile jurisdictions; 
  • the currency opportunities created by the depressed pound, although this fluctuates; and 
  • the lack of competition following the slowdown in activity by UK investors.

According to a survey prepared by FTI Consulting, there has been a steady increase in global investors for UK real estate, and in the last five years London has been the most traded market in the world, with over 50 percent of central London’s commercial real estate in the ownership of overseas investors. The overwhelming result of this survey is that the UK, and particularly London, will remain highly appealing for the next five years. Many drivers encourage investment into the UK, including economic stability, perceived liquidity, the availability of market data and a strong and transparent legal framework. 

Surveys reveal that the market remains steady and in Q3, there was a 16 percent increase in activity. We expect the same for Q4 and beyond. The prediction is that investment activity should remain healthy for some time.

In the last year we have seen disposal activity largely from the banks, UK institutions and pension funds but now we are seeing more deleveraging activity from loan portfolio buyers who have bought large portfolios from the banks. Opportunities are now opening up to buy individual assets or sub pools of loans, and these types of sales could be here for some time. Generally loan portfolio buyers aggressively manage assets that they have bought in order to extract more value; therefore something of a time lag existed between the major portfolio deals being reported and a significant flow of assets appearing from them. This is now changing. There is competition to buy typically secondary assets, which have been bolstered by the bottoming out of capital values (as recorded by the IPD) and now, the increasing availability of finance. 

While a lot of the activity has been concentrated within London and its sub markets, recent reports confirm that confidence looks to be on the up across the major UK cities. Rising take up, falling supply in the sub markets in London and increased investor appetite during 2013 is boosting confidence in how the regional market, particularly the office market, is set to perform next year. Office take up across the UK regions is expected to rise by 17 percent in 2014. Notably, this year Birmingham posted a 128 percent increase in take up, followed by Leeds, where the take up has risen by 117 percent.

Good opportunities exist to buy real estate in the UK. It is an easy market to enter and there are no restrictions on foreign ownership or occupation of real estate. We are aware that one of the perceived barriers to entering the UK market is the tax regime. However, if properly structured at an early stage, investors in the UK can benefit from a generous tax regime — these structures usually involve offshore companies.