The continued appetite for moving money and increasing investment cross-border shows no signs of abating. What’s more, global capital continues to focus on Central London.
With investment volumes totalling £6.89 bn, H1 2018 has seen much stronger activity than many had anticipated. Indeed, according to data from RCA, Central London is once again the most liquid real estate market in the world.
And while the market in 2017 was clearly defined by global capital striking £1bn+ mega-deals, this year has arguably seen the trend continue, with seven of the 11 £200m+ deals completed by overseas purchasers.
At the macro level, the rationale for this demand is relatively straight forward: as our recent Active Capital research demonstrates, there is still a significant – and growing – weight of capital targeting real estate as an asset class.
It derives from a range of investors that spans global institutions, to equity funds, to private capital, all of which value the ability to deploy capital in large lot sizes. As we detail in the research, there are good reasons to expect this demand for real estate assets to remains intact.
But why does it continue to favour London? All of the standard arguments of stability, transparency, and liquidity hold true, of course. And we could highlight research from our global Wealth Report, which shows that many ultra high net worth individuals – of which the next five years are set to see rapid growth globally – rank London as their first port of call for their maiden overseas property investments.
However, London increasingly enjoys another benefit, in the form of relative value. One corollary of rising demand for European real estate is that capital has been funnelled into continental markets that are traditionally nowhere near as liquid as London, and this has quickly led to exceptionally low yields – 3.00% is a common prime yield across many European cities, not just capitals.
In a comparative sense at least, London office prime yields can therefore seem good value to overseas investors, particularly given prospects of modest rental growth, and the recent movements in Sterling, which provide an added currency advantage.
Longer-term, this could prove the right mix of attributes to attract global capital targeting Europe, a significant proportion of which comes from experienced overseas investors who are less singularly focussed on capital preservation and value the prospect of comparatively healthy income returns.