Chinese pump billions into London real estate market despite Brexit

08 September 2017 Consultancy.uk

As London looks to make the best of post-Brexit life, recent figures show that China is investing heavily in the London real estate market. In the first half of 2017 alone, £5 billion in Chinese capital was sunk into Britain’s capital city, as the low pound continues to make the present financial hub of Europe an attractive prospect, despite an uncertain future for links with the continent.

According to recent projections by AlixPartners, financial services giants are already making plans for a Brexodus from the City of London, with 40,000 jobs said to be under threat in the UK as a result. Despite this, or perhaps because of it, the major offices in the British capital are becoming more popular, with Big Four firm Deloitte predicting that the badly struggling Pound will likely see London office space growth hit pre-Millennial levels, with property becoming increasingly affordable to foreign investors. In particular, according to new analysis from UK-headquartered consulting firm Savills, Chinese investors are presently pouring record amounts of capital into offices in the City.

According to the figures released by the real estate advisory, the first half of 2017 saw a colossal £5 billion brought in for property in London's financial heart. The office market in the West End in particular, a popular zone in the centre of the City, once again experienced the best half year of all London’s districts. Investors from China and Hong Kong accounted for half of the 64 transactions in the region as a whole, meanwhile. The new entrants into London’s real estate market often pay high sums, while enjoying initial returns of well below 4% after first year rent is divided by purchase price, however these fees are around 10% to 20% cheaper for investors in Hong Kong and China than they previously would have been due to the struggling Pound. Should London prove resilient enough to weather the storm of an uncertain Brexit, the improvement in the UK’s ailing currency coupled with access to what would be a booming market could prove such transactions to be shrewd business.

Chinese investors pump billions into London real estate market despite Brexit

One of the most famous examples of the trend is London's most expensive building, the “Walkie Talkie”, which has recently been obtained by an investor from Hong Kong, for a substantial £1.3 billion price-tag. Lee Kum Kee, a company which is best known for making a fortune on the production of oyster sauce, completed the purchase at the end of July. Even for London, which has seen inflation for property rocket over the past decades, this was an unprecedented sum. Earlier this year, meanwhile, the tallest building in London, commonly dubbed the 'Cheesegrater', had also been bought for £1.15 billion by CC Land, the subsidiary of a Chinese real estate brand. The vacancy rates and rentals in the London office market remain stable meanwhile.

Paul Cockburn, Director of the Central London Investment team at Savills, said that the influx of overseas investors prompted by the UK's devaluing currency was continuing. "From a Chinese investor's standpoint, London looks attractive as the currency shift means that entry prices may appear 15% - 20% lower than this time last year," Cockburn said.

Plan B

The Dutch real estate market is also attracting more and more Asian capital meanwhile. The Benelux region’s economy, including its consulting industry, is continuing to improve steadily, and the Dutch capital of Amsterdam has already been talked about as a viable successor to London as the financial centre of Europe, due to the ease of access it has to regional and global markets. This has already seen it become the top European city for hotel investment, usurping London following the shock Brexit referendum vote of 2016.

Asian investment in the Netherlands already accounts for a quarter of the investments made in Dutch offices during the first half of 2017. The largest deals of 2017 almost always involved Asian parties. For example, there was a large amount of Asian financing behind the largest Dutch office deal of all time, the sale of the Atrium building to Amsterdam Zuidas. Recently, two Asian investors, including a large Japanese bank, invested around €100 million in Dutch offices at station locations through the ASR Real Estate Asset Management Office.

The Chinese conglomerate Anbang, the mother of insurer Vivat, also purchased €500 million worth in shares of Dutch insurers Anbang insurance company in 2016, while De Rotterdam, the largest building in the Netherlands, came to be held by Korean investors. While London’s level of deals continue to draw the headlines, it has become clear that Asian capital is treating the Dutch market as a potential plan B, should a Hard Brexit limit trade potential from British-based branches.

"These investors also target the Netherlands because they want to diversify their property portfolio," said Clive Pritchard, of Savills Netherlands.

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