US capital swoops into UK CRE recovery with 64% y-on-y growth in investment

BNP Paribas Real Estate’s analysis of Q1 2024 has revealed that investment activity from US-based buyers into UK commercial real estate (CRE) has risen substantially, with London recording its highest share versus the rest of the UK in almost a decade. The analysis demonstrates that US-based investors are seeing value in current asset pricing in the UK market.

  • Total UK inward investment from US-based buyers recorded a 64% year on year increase from £1.9bn (Q1 2023) to £3.0bn (Q1 2024).
  • There was a 117% quarter on quarter increase from the £1.4bn recorded in Q4 2023 to the £3.1bn in Q1 2024, marking the biggest quarterly increase in the post-pandemic era.
  • Investment activity from US-based buyers into the UK in this period has now surpassed the 5 and 10-year quarterly averages (£2.8bn & £2.6bn respectively).
  • Total UK inward investment from US-based buyers closed at £7.6bn in 2023, which was the lowest annual recorded total since 2018 at £6bn. Early activity suggests the UK is on track to exceed this in 2024.

Charlie Tattersall, senior associate director, capital markets research at BNP Paribas Real Estate commented: “The US CRE market continues to face some turbulence in the form of foreclosures, tight financial conditions and a slow pace of return of staff to office spaces. At the same time, geopolitical instability and stronger-than-expected economic growth relative to Europe has strengthened the dollar and widened the spread between US and European debt costs. As a result, capital is increasingly being driven towards markets such as central London, where leasing fundamentals are more attractive and the currency effect more favourable.”

Simon Williams, head of national markets at BNP Paribas Real Estate added: “London and much of the UK may now offer the value correction narrative which supports opportunistic and value-add led investment plays from US capital. As interest rates begin to come down materially in the coming months and liquidity gradually improves, we anticipate this trend to persist as the real estate recovery continues to play out into the second part of this year and beyond.”

Of the £3.0bn invested in Q1 2024, London CRE secured £1.9bn, which is the highest total recorded since Q4 2015 (£2.7bn), and is a 63% share of the total UK figure. It the highest share London has secured versus the rest of the UK since Q1 2019 where it achieved a 78% split at £1.6bn of the total UK figure which stood at £6.5bn.

London hotel and office transactions dominated the £1.9bn Q1 2024 total, at £871m and £575m respectively, backed by a series of deals including:

  • BT Group’s £275 million sale of the BT Tower for hotel redevelopment to MCR
  • Langham Estate’s £300m mixed-use portfolio sale to Oval Real Estate and Elliott Management
  • Starwood Capital’s acquisition of a £800m portfolio of 10 hotels from Edwardian Group
  • Ares’ purchase of 25 Charterhouse Square for £43.5m and £65m for Shaftesbury Capital’s Fitzrovia holdings

Fergus Keane, head of central London capital markets at BNP Paribas Real Estate commented: “This positive uplift into this new cycle tells us US capital is firmly back in the market. Recently, in a clear vote of confidence in central London, Blackstone completed on the acquisition of Oxford Properties’ 130-134 New Bond Street for £227m, at a 3.5% yield and is reportedly considering other opportunities in the capital. This is possibly the clearest sign so far this year that, despite continuing macroeconomic volatility, London’s pricing and occupational market are compelling enough for investors to begin targeting the commercial real estate sector again.”

On the impact of the US election, Keane continued: “In any country, domestic political tension can prompt investors to become more agile with their capital. In the case of the US, this is certainly at play, but there are many more investment levers in the mix. The fundamental attractiveness of the UK real estate market is the key driver here, and the strength of the dollar against the pound, coupled with where the UK is at this point in the cycle, are the more dominant themes at the moment.

“Investors are encouraged by the rental growth prospects which will ultimately counteract inflation. In this market, fortune favours the brave and the early movers are the ones who will reap the rewards. There is a lot of bidding going on at the moment, and a significant amount of investment is targeting central London. The second half of the year will be one to watch for deal activity.“

According to the firm’s latest Q1 2024 London office data, City prime rents have increased from £75 to £77.50psf and Mayfair/St James from £150 to £155psf.