Central London real estate continues to be a prime target for international investors

New data from BNP Paribas Real Estate shows that global capital is actively seeking investment opportunities in London.

Investors from Asia have been particularly active and spent £628m on real estate in the UK Capital in the first six months of 2020, up 74.4 percent on the same period in 2019. Asian investors were also responsible for 31.4 percent of all real estate transactions in Central London during Q2, compared with just 9.8% in Q2 last year.

As lockdown has eased in the UK, a number of high-profile deals have been concluded. These include One New Oxford Street, WC1 for £174, bought by Singapore-based Sun Venture, and US Private Equity Group Stars REI’s acquisition of 103 Mount Street, W1 for £80m.

Although there has been fears of real estate prices dropping, due to the global pandemic halting investor activity and causing huge uncertainty over how to price in risk, there is little evidence of pricing for prime-quality assets slipping. Instead, while the supply of investments to the market has dwindled, the level of capital waiting to enter the London real estate market has remained high, creating competitive bidding scenarios for a number of assets.

Simon Glenn, Co-Head London Markets, BNP Paribas Real Estate says:

“Despite the unprecedented times we find ourselves in, with slowing market activity across the world, international capital has continued to target real estate in London. In 2019, £9.3bn was spent on real estate in London by international investors. This is likely to slow this year but levels of international demand remain high while UK buyers have fallen away. As a result, international investors have accounted for almost three quarters of all transaction volume so far in 2020.

Our Capital has proven to remain resilient against the backdrop of the global pandemic as well as the domestic uncertainty surrounding Brexit. While we are beginning to see more tenant space being released to the market, the overall vacancy rate is still below the long-term average of circa 6.5%. Moreover, construction delays have resulted in some 2020 completions being pushed back to 2021. As a result, the Central London market is scheduled to see just over 3.8m sq ft of new stock delivered over 2020. Of this, 57% is already pre-let. A constrained development pipeline and stubbornly-low grade A vacancy will help to ensure London continues to be seen as a safe haven offering long term value. The main concern is not investor appetite but lack of quality assets on the market. Supply continues to be restrained as many owners are reluctant to sell prime assets while uncertainty over pricing and the future of office space remains.”

Central London real estate also continues to offer value in relation to other asset classes. UK bond yields have dropped to historic lows, while equities continue to be volatile. Meanwhile, yields for prime Central London offices have held firm.

The lack of yield and widespread risk-averse sentiment will help to counteract any negative impact on pricing due a difficult occupational market, as investors will be pushed towards real estate in search of more secure income, resulting in increased competition for assets.”