Overseas buyers shop for strong covenants and long leaseholds across the UK
Overseas investors ploughed £5.8 billion into the UK’s regional commercial property market in 2016 – accounting for nearly a third (29%) of the total investment outside of London, with hot spots in Edinburgh, Manchester and Cardiff.
That’s according to new research by Savills, which says that in 2014 and 2015, when investment volumes in the UK regions were at an all time record, overseas investors represented an 18% (£4.1bn) and 27% (£6.1bn) of the total turnover respectively.
Savills reports Middle and Far Eastern buyers were particularly active outside of London in 2016 spending £1.9 billion, an increase of 90% on their total spend in the UK regions the previous year. Key deals include Abu Dhabi Investment’s purchase of Liverpool One Shopping Centre (£300 million), and Mapletree’s £563 million purchase of Green Park, Thames Valley.
The firm’s research also highlights noteworthy appetite from European investors who had a 32% market share of total investment in the UK regions, with German investors accounting for almost half of this. Whilst some US investors were less active than previous years, Savills notes there was still activity from American buyers who accounted for 14% of activity by year end.
James Gulliford, joint head of UK investment at Savills, said: “The UK is an attractive investment destination for global buyers because of our legal system, landlord friendly regulations, standardised market, time zone and culture. On top of this, the Sterling devaluation has made pricing attractive for investors whose currency is pegged to the US dollar, while a temporary absence of UK institutional buyers has created a marginally less competitive marketplace.”
The multi million pound funding of Edinburgh’s St James Quarter in the final quarter of 2016 by Dutch pension asset manager APG set the Scottish capital city at the top spot for international investment into commercial real estate outside of London (80% market share). Savills data shows, in terms of share of total turnover, Greater London (58%), Manchester (57%) and Cardiff (45%) also experienced noteworthy activity from international investors in 2016, followed by Glasgow (28%), Birmingham (28%), Bristol (8%) and Leeds (5%).
Nick Penny, Investment Director and Head of Savills Scotland, said: “Despite Brexit and the uncertainty surrounding Indyref 2, Edinburgh is a globally acknowledged capital city, a power house and a major tourist destination. This, coupled with the available discount in Edinburgh to comparative UK cities south of the border, and any further discount from the drop in Sterling, has seen overseas investors account for 80% of all property investment in Scotland last year.”
With investment return volatility in the UK regions lower comparative to other markets, overseas investor appetite for the wider UK market looks set to continue in 2017.
Joint head of the UK investment team at Savills Richard Merryweather suggests there is further opportunity for this activity to filter into sub-regional markets: “Overseas investors, particularly Middle Eastern, are looking to the UK regions for assets leased to strong covenants that offer yields of 6%+, a significantly higher initial return than on most other investment types (not just central London).
“We’re seeing the first signs of foreign buyers looking at markets such as Bracknell and Portsmouth that provide more yield compared to traditional hubs of Birmingham and Manchester, and suburban London (Slough, Sutton, Hammersmith) where UK investors have dominated until now.”