Sales of existing commercial property in the UK capital totalled $13.9 billion in the first nine months, more than in any other city, according to a new report from Real Capital Analytics, with some of the biggest deals of the year being announced in the final quarter.
‘There’s a massive surplus of investment capital looking for a home, and the one thing in common is a desire for yield. A core London office property at a 5 or 6% yield looks fantastic against the alternatives,’ said Dan Fasulo, managing director at Real Capital Analytics.
Cash rich pension funds, sovereign wealth funds, insurers and wealthy individuals bought shops, offices and even luxury homes in central London as low interest rates and concern that the global economy will deteriorate made other investments riskier and less appealing. The city also ranked first in 2009 with sales of $16.8 billion, the report also says.
In the past two months, Norway’s sovereign wealth fund agreed to pay £448 million for a stake in Regent Street. JPMorgan Chase purchased a new European headquarters building for £495 million and Dutch and Canadian retirement funds signed an £872 million deal giving them part of the Westfield Stratford City mall next to the site of the 2012 Olympics. And in May, the sovereign wealth fund of gas rich Qatar bought the Harrods luxury department store for £1.5 billion.
‘Negative real interest rates mean you aren’t going to buy government bonds, corporate bonds have already had an incredible rally, gold doesn’t give you a yield and the stock market is volatile,’ Fasulo explained.
Tokyo ranked second after London based on existing commercial property sales in the first nine months, at $13.1 billion. Hong Kong was third, followed by Paris and New York.If land deals for development are included along with existing buildings, Shanghai attracted the most money in the first three quarters, at $21 billion, the data shows. About 81% of that figure is for development projects.
New York held the top spot in the world for commercial real estate sales in 2007, at the height of the debt fuelled investment boom. It slipped to second place after Tokyo in 2008, and to seventh place last year. In the first nine months of 2010, sales of existing New York commercial property totalled $5.8 billion.
However, investors may start to look away from London in 2011 as property in parts of the US becomes good value again, according to Fasulo. US deals may double next year and account for almost a quarter of global transactions, he said. Fasulo predicts ‘a wave of new investment’ over the next six months in Manhattan worth about $10 billion.
