Brexit worries could be damping sentiment in Europe, but in Asia, real-estate investors do not appear too concerned.
While Chinese purchasers of London property have put away their wallets as capital controls bite, buyers from Hong Kong, Singapore and South Korea are picking up the slack.
Victor Li (李澤鉅), who succeeded his billionaire father, Li Ka-shing (李嘉誠), as head of the CK Group of companies, purchased UBS Group AG’s headquarters in the City of London financial district for ￡1 billion (US$1.31 billion) earlier this month, while Singapore’s Ho Bee Land Ltd splashed ￡650 million on a 21-story office building called Ropemaker Place.
In March, a venture between South Korea’s Mirae Asset Daewoo Co and NH Investment & Securities Co bought Cannon Bridge House for ￡248 million, while the Mirae group — which owns Mirae Asset — last month acquired a ￡340 million building from Blackstone Group LP.
Korea Investment & Securities Co last week successfully bid for a 15-story office building for ￡200.5 million.
According to CBRE Research, London office buildings worth ￡7.23 billion have changed hands this year, with buyers from Asia accounting for 60 percent of the action, the most ever in a half-yearly time frame.
It is a marked shift from 2014 and 2015, when China was the biggest source of Asian buying in London. Now, conglomerates like Dalian Wanda Group Co (大連萬達) are in exit mode.
There has been only one big Mainland Chinese deal this year — Beijing’s purchase of an office complex on the edge of the City of London for its new embassy.
Taking the crown to a large extent are investors from Hong Kong, snapping up iconic buildings such as the “Cheesegrater” at 122 Leadenhall Street and the “Walkie Talkie,” which set a new record for a single UK office site.
Hong Kong developers cannot be blamed for looking further afield.
The territory is home to the world’s most expensive commercial real estate and vacancy rates are currently at 4 to 5 percent, below the long-term average of 6.5 percent, CBRE executive director James Beckham said.
London also appeals to investors in Singapore, who, like buyers from Hong Kong, are familiar with British common law and might have sent their children to school or university in the UK.
Meanwhile, South Koreans appear to be favoring the UK over the US, although New York remains a popular destination for their funds.
It also comes down to affordability — it is worth remembering that since the financial crisis, the Bank of England has raised rates only once, while the US Federal Reserve has hiked seven times.
London and New York also typically have longer leases: about 10 years on average, versus about five in Paris, Frankfurt and Tokyo, and as little as two in Beijing.
Occasionally, as CK Asset Holdings Ltd’s purchase of UBS’ headquarters showed, investors can get even more. The deal included a 17-year lease, with the possibility of raising rent every year to keep pace with inflation.
While London might be the worst-performing market in the UK for home prices, the office sector looks set to keep Asian landlords coming.
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