Far East Love Affair With UK Commercial Property Cools
After two decades during which Far East investors poured a mighty £72.5B into UK offices, industrial, leisure and retail, the surge has dwindled to a trickle.
Even before the coronavirus pandemic, the tide had turned. In 2019 Savills data showed that £4.3B was invested, the lowest annual figure since 2012, when Far East investors spent £3.1B.
The slide began years earlier as the market climbed down from the peak of post-Brexit exchange-rate-fuelled bargain hunting in 2017.
In that year volumes shot up from a five year average of £6.2B to a total of £13.1B. More than half of this (£8.8B) went into the office sector. But declining enthusiasm for London offices was not counterbalanced by growing interest in UK leisure property assets, meaning every year since totals have fallen. In 2018 they slipped to £10.8B (down 20%) and fell a further 60% in 2019.
The data for the pandemic year of 2020 suggests investment held up remarkably well, given the limited opportunities for international travel. Total Far East investment was £3.8B, of which the overwhelming majority (71%, £2.7B) found its way into London offices and selected regional office markets.
First quarter figures for 2021 make grim reading: The total volume of Far East investment so far is just £442M, less than 11% of the disappointing performance in 2020, and a mere 3% of the volume transacted in 2017. That drop is greater than the overall fall in transaction volumes.
The flow of money into UK real estate depends on local economic and political conditions in individual Far East nations. The recent trend has been to spend elsewhere.
"There are pockets of Far East demand from places like Singapore, China and Malaysia but not so much from Japan, and they are buying selectively in offices, residential and logistics,” Savills Investment Director Oliver Foster said.
"However, looking at the source of overseas investment, the Far East and Hong Kong are among the quieter areas at the moment, though of course it is hard to generalise. The Middle East is a lot noisier, as are European mainland funds and opportunistic investment from North America."