Overseas investors are chiefly responsible for the improved condition of the key London commercial property sector, according to research by CB Richard Ellis.
In research published today, the property consultants say that while there has been a marked recovery in investment volumes and an improvement in yields since the start of the year, it is foreign investors who have dominated the London market, generating most of the new transaction and contributing 80 per cent of turnover in 2009.
The biggest deal in London since the start of the year was the £1.1bn sale of 50 per cent of Broadgate in the City by British Land, which was sold to the US private equity group Blackstone in September. Last month South Korea's state pension fund, in effect a sovereign wealth fund, paid £772m for HSBC's Docklands headquarters.
"Overseas investors have been attracted to the London office market in increasing numbers during 2009 due to the sharp fall in capital values since 2007 and the weakness of sterling," said Kevin McCauley, CB Richard Ellis's head of central London research. "An additional factor is that some foreign buyers are not constrained by debt, which has also worked to their advantage."
The third quarter of the year has been especially buoyant, with investment in the capital surging to £2.7bn, pushing total investment to £6.2bn for the year to date. Mr McCauley said that "of this, foreign buyers have invested £4.9bn, accounting for 80 per cent of total investment – the highest proportion ever".
After a dreadful start to the year when the sector was hammered by falling property prices, a refusal of the banking sector to lend after the sub-prime débâcle and falling rents, there has been a revival in the industry over the last few months. Flows into unlisted UK property funds hit £704m in the third quarter, the largest quarterly amount in two years, data from the Association of Real Estate Funds showed earlier this month, while the respected Investment Property Databank's monthly index of commercial property values rose for a third straight month in October. The jump of 1.9 per cent came after the index grew 1.1 per cent in September. The index had fallen 44 per cent since the highs in valuations seen in mid-2007.
Last week, Francis Salway, the chief executive of UK's biggest commercial property group, Land Securities, called the end of the property slump. "The increases will not be in a straight line; there will be ripples along the way, but we are increasingly confident," he said.Reuse content