To Invest Or Not To Invest: Evaluating The U.K. CRE Market In The Age Of Brexit
As the U.K. prepares for a potential departure from the European Union, it enters uncharted economic and political territory. Despite this uncertainty, foreign investment into Britain is not going anywhere. Private and institutional foreign investors are capitalising on the effects of Brexit and investing at unprecedented levels, with Asia leading the charge.
Before the June 2016 referendum, many warned lawmakers that a vote to leave the EU would result in decreased foreign investment. But the numbers say otherwise. Net foreign direct investment flows into the U.K. hit a record high in 2016 at £145B, up from £25.3B in 2015, according to a Reuters report.
At first, there was reluctance from some overseas groups to invest given the U.K.’s current political climate. Some real estate investors felt that the future of the U.K. was uncertain, and that jumping in could pose substantial risk. In 2016, investors from South Korea invested almost exclusively in mainland Europe. But others, particularly private investors, saw this as an opportunity to buy assets in a less competitive environment with a strong currency advantage. A new wave of more confident investors is now driving U.K. FDI, and brokerages are optimistic about the future of British real estate.
In Hong Kong and Singapore, investors are placing large amounts of capital into London as well as core regional markets like Manchester and Birmingham, which are particularly attractive because there is perceived growth opportunity. The U.K.’s welcoming attitude toward foreign investment paired with the low level of the pound makes it a good fit for many global investors.
“If you think about some of the issues happening across the world at the moment, for many investors from the Middle East and Asia in particular, Brexit is actually a relatively small issue,” Savills Head of Cross-Border Investments Rasheed Hassan said.
In parts of Asia, outbound investment is not as strong as it has been historically. For example, institutional investors from Taiwan and Malaysia have recently been more subdued when it comes to investing in the U.K., but it is not for a lack of appetite.
“People want to invest oversea, but some are restricted from doing so,” Hassan said. “Some countries are trying to boost their own economy, so they are taking measures to try to keep the money at home.”
Despite focusing their attention on other European markets in recent years, investors from South Korea are also beginning to express a renewed interest in the U.K. market. Savills recently closed a £300M deal with a Seoul investor in the London market. This investment is larger than all of the Korean deals made in the U.K. last year combined.
“South Korea is the country to watch for 2018 investment into the U.K.,” Hassan said.
To learn more about this Bisnow content partner, click here.