The London commercial real estate market has flexed its muscles in the years since the downturn, proving itself to be the world’s real estate safe-haven.
Since 2008 London has been the most traded real estate market in the world. And up to 60% of that investment has come from foreign investors.
A report commissioned by Development Securities PLC, Who Owns the City? identified that 52% of the City is now foreign-owned, the first time that the level of overseas ownership of the City’s office stock has overtaken UK ownership. To put it in context, that rise to 52% foreign ownership has come from just 8% in 1980. The sharpest increase in investment has come from Germany, which now owns 16% of the City, compared to just 1% in 1980.
According to research from Real Capital Analytics, in the second half of 2011 London benefited from £10.1bn of foreign investment. Going further back, Development Securities PLC has found that with €72 billion of sales activity between 2007-2011, London dwarfs Paris (€43 billion) and Frankfurt (€11 billion) as the most attractive market for office investment in Europe.
With foreign investors moving in, whether in the guise of sovereign wealth funds, cash rich institutions or an increasing number of super-wealthy private individuals, the Urban Land Institute’s report Emerging Trends in Real Estate Europe 2012 has identified a growing feeling in the wider market of “difficulty of getting hold of assets, strong competition and bubble-like pricing”. This sentiment has led to a boom in the West End (where, for example, Land Securities seem set on taking over Victoria), but equally a feeling that secondary office space is over priced and comparatively poorly-specified.
London has historically always been the point at which foreign money enters Britain. This sharp increase of foreign investment in London property shows no sign of abating; the Shard for example is 95% owned by the government of Qatar. Despite this, there are opportunities and markets for developers and investors of more modest means who can show creativity in their investment strategy.