US and Chinese set to dominate London commercial property market in 2015

Chinese and US money is set to dominate London’s commercial property market in 2015 after Chinese investors accounted for more inward investment in 2014 than all European buyers collectively.

Of the £21 billion spent in the London market, some £14.6 billion or 70% was attributed to foreign buyers. US investors spent £3.4 billion, Chinese £2.2 billion and Qatari investors £1.2 billion, according to a new analysis from international real estate advisor Savills.

China Life was one of the biggest new entrants of the year with its deal at 10 Upper Bank Street. Chinese investors were the biggest buyer group from Asia, with developers such as Shanghai Greenland, Ping An Trust and China Overseas Land Investment purchasing properties. The Savills report also shows that these investors are not limited to single transactions, and anticipate more activity.

US investors including Blackstone, Kennedy Wilson and Hines have secured some of the larger deals such as Alban Gate, 111 Buckingham Palace Road and 25 Cabot Square, with Northstar entering the UK for the first time purchasing a property in Woking before going on to purchase a 1.1 billion euro portfolio which included four assets in London.

Other new entrants, who Savills is acting for, include parties from Taiwan, Turkey, Singapore, Israel and Yemen.

‘Debt is a significant factor in drawing in these international parties, falling swap rates and competition between lenders is making borrowing cheaper,’ said Rasheed Hassan, director of cross border investment at Savills.

‘Aside from that there is genuine confidence in the strength of the occupational market with rents steadily rising. These pull factors are further boosted by push factors such as the returns in the bond markets as compared to property and some economic instability across other geographies,’ he added.

According to Eric Zhao, Savills Chinese Capital Markets Specialist, Chinese investors coming into the UK market are mainly developers and insurance companies. ‘The top Chinese developers are being driven by challenges in the domestic market and global branding needs,’ he said.

‘Insurance companies are beginning to diversify their huge capital outside of China after the restriction on overseas investment was lifted by the regulator. We have already seen the top Chinese firms make a statement in London and we are expecting more to follow,’ he added.

The report reveals a rise in private investors entering the London markets and points out that appetite from these parties has not been restricted to smaller lot sizes, with the Savills sale of The Gherkin to the Safra family, as the most significant larger private investor transaction as well as others from China, Spain and Hong Kong. 

‘Whilst further in-flight of capital will keep turnover levels high, very few of the international institutional type investors have demonstrated a willingness to go to the initial yield levels that have been seen on the UK prime assets,’ said Stephen Down, Savills head of Central London .

‘Whether they will go to these levels depends on further rental growth coming through in the prime areas in particular but at the moment the threshold for Chinese investors seems to be no lower than 4.5 to 5%,’ he added.