Asian investors remain confident in the UK, despite many unanswered questions about Brexit, according to a new report from JLL. The property consultancy reveals that real estate transaction volumes in the UK for the first quarter of 2017 are at their highest level since 2015, in local currency terms.
The research shows that the UK led the way as the most active real estate market in Europe and became the world’s most traded city, compared to third place last year.
“With the sterling depreciation and slight drop in capital values, Asian investors – particularly private buyers from Hong Kong and China – have been the most active in London since last year’s Brexit vote,” says David Green-Morgan, Head of Research, Global Capital Markets at JLL. “The depreciation and capital values drop means that UK commercial real estate is now discounted by 16 per cent on average to overseas capital since the June 2016 referendum. The net yield of City prime buildings is also very attractive.”
Hong Kong buyers spent nearly US$3 billion exclusively on UK properties in Q1 2017, compared to only US$842 million in Q1 2016, snapping up offices in London’s City and West End, outspending global funds and all other foreign groups combined by nearly US$1.3 billion.
What’s more, Asian buyers continue to seek properties in the US, despite broader political and economic uncertainties.
“In line with recent trends, Asian buyers were among the most active investors in the US, with investors from Singapore, Japan and China driving most activity,” says Mr Green-Morgan. “Investors from Singapore and Japan acquired offices in New York, Boston and Washington D.C., as they renewed their focus on core assets in global gateway cities.”
Impact of China’s capital controls
Despite increased government scrutiny, Chinese outbound capital increased by 84 per cent in Q1 2017 to US$7.5 billion, compared to US$4 billion in Q1 2016. Chinese buyers continued investing in Hong Kong, Chicago, Los Angeles and San Francisco.
However, overall outbound real estate transaction volumes were down by 36 per cent compared to Q4 2016.The shortfall in outbound capital was confined to investments in Australia and Hong Kong, with cross-border buyers focusing mainly on core CBD office assets, retail malls and properties in niche sectors such as senior housing.
“The new outbound capital control measures are likely to slow down overseas investments, as Chinese corporates and individuals will find it harder to invest outside of China. This is driving an increase in demand for domestic real estate investment going forward,” says Dave Chiou, Director of Capital Markets Research, China at JLL. “However, for Chinese companies with established overseas presence, the impact could be limited as they can use funds regenerated from overseas branches for investments.”
Japan posts strongest quarter since 2015 to lead the region in capital flows
Outbound investment from Japan increased by 63 per cent year-on-year in Q1, driven primarily by real estate companies, J-REITs and asset managers.
Investors are motivated by a stronger yen and several other factors: the expectation that a declining population could lead to lower demand for real estate in Japan in the long-term, greater need for geographical diversification of assets, as well as increased competition in the domestic real estate investment market.
Overall, global transactional volumes for Q1 2017 were US$136 billion, one per cent below the same period last year. Asia Pacific investment volumes remained consistent from 2016, rising by one per cent. Europe saw a strong increase activity as volumes climbed three per cent, while the Americas fell by five per cent.