Are South-east Asians Really Driving the London Property Market?

Over recent years, the London property market has experienced increased activity from south-east Asia. Wealthy buyers are now seeking real estate investment opportunities in the UK capital...

Over recent years, the London property market has experienced increased activity from south-east Asia. Wealthy buyers are now seeking real estate investment opportunities in the UK capital, be they residential or commercial, to increase asset values. Their presence on the scene has become so dominant that many now believe that it is this new breed of investor that is driving the sector. However, others aren't so sure and question the extent of south-east Asian activity.

According to Jones Lang LaSalle, it was not until 2009 that the first tide of Asian investment in London began, with pricing reductions, as a result of the financial crisis, attracting a foreign market. "London's market transparency and established legal structure as well, as the traditionally longer lease terms of up to ten years gave foreign investment funds a clear picture of the real values that could be achieved," the real estate agent wrote.

Overseas property investors were quick to take advantage of this environment, the weakness of sterling, "strong real estate fundamentals", high liquidity and competitive prices, specifically in the West End and City of London, Chris Brett, director of Jones Lang LaSalle's International Desk, explained.

By the end of 2009, 85 per cent of all commercial real estate purchases in London had been made by overseas investors, dropping slightly to 65 per cent in 2010 as the financial crisis spread. One of the largest transactions made during this period was the HSBC Tower in Canary Wharf, which was sold to South Korean buyers. Malaysians were also active during the period, snapping up three central London assets.

In recent years, the main bulk of foreign investment has come from China and Hong Kong, with real estate purchases from the former predicted to soar well into the future as business look to expand to Europe. Research by Savills revealed that more and more property investment deals are being brokered by Chinese retailers, with as many as five leading groups looking for stores in London, including JNBY, Li Ning and luxury menswear brand Eve Enterprise Group.

Peter Thomas, director of central London retail at Savills, commented: "The potential for Chinese retail expansion in the UK came to the attention of London agents with the first entrant, Bosideng in July 2011. Whilst it's one of China's largest clothing companies, our research has shown that its only ranked sixth domestically in terms of annual retail sales, meaning that while it was one of the first to land in London, it certainly won't be one of the last to take a store here."

Lucian Cook, head of residential research at Savills, agrees, stating that London is viewed as both a safe haven for south-east Asian investors and a world city from which to launch their agendas. With an historical currency advantage and targeted campaigns to encourage the emerging wealth generation from this region to invest in the UK, it seems the future is bright from south-east Asian/British property relations.

However, Mat Oakley, commercial research director for Savills, isn't convinced that this much heralded property union is as significant as some would have us believe. "They are certainly not in the commercial market," he said. "[South-east Asians] are active, but are by no means the most active. I think about 20 per cent of purchases of buildings in the City of London have been by south-east Asians but in the West End it has been by mainland Europeans and Americans."

What's more, with regional office markets becoming increasingly prominent, London may have to watch its back over the coming years. According to Mr Oakley, Manchester, Glasgow and Bristol are just three regional cities that are attracting foreign investment at the moment. Prices and rental growth remain positive in these areas, and with the relocation of the BBC to Manchester, foreign buyers are starting to take note.

Nevertheless, London is likely to never be far from the minds of south-east Asians. Mr Oakley stated: "The bulk of it is always going to go to London and that is always the way. The very prime, regional shopping centres are also very popular with international investors [...] But the vast majority of non-domestic investment - around 60 plus per cent - in the UK is always in London."

- Monday 17 December 2012

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