Overseas investment into UK property hit a record £30.8bn last year, with particularly strong growth in the regions.
Investment into the UK, excluding London, rose 60%, year-on-year to £14.4bn, while London enjoyed a 42% rise to £16.4bn, according to data from CBRE.
Though still dominant, London’s share of overseas capital fell to its lowest level in this cycle at 53%.
By contrast, 71% of all foreign money that came into the UK between 2009 and 2013 targeted the city.
Tellingly, although it was the UK’s strongest year for overseas investment, London attracted more capital in 2011 and 2015.
Phil Cann, head of UK investment at CBRE, said: “As the assets in London have maintained their value, some more entrepreneurial overseas capital has looked to UK’s other leading cities – particularly Manchester and Birmingham.
“As the government initiatives around the Northern Powerhouse etc begin to get further traction internationally, we’re already seeing pioneering investors looking in those sort of locations.”
Cann said he predicts that trend will continue, although the weight of capital will still target London.
Who is investing?
Hong Kong, responsible for the Walkie Talkie and Cheesegrater, EC3, deals last year, was the most active investor, knocking the US off the top spot.
It was the second year in a row that the top five investors were Hong Kong, the US, China, Germany and Singapore.
South Korea had the most significant increase, leaping from 24th to10th place with £761m invested in UK property in 2017 – up from just £126m the previous year.
Cann said that increase reflects the desire for South Koreans to diversify amid political tensions at home, and an increase of institutional capital looking for investments.
“Certainly for some of the institutions in South Korea clearly there isn’t enough real estate,” he said.
As a result, there is an expectation of further growth in South Korean investment in the UK, particularly in the City.
Regions to watch
Hopes are high for Japan’s push into UK real estate.
The country made no investments in the UK in 2017, but Japan’s £1tn Government Pension Investment Fund has started appointing investment managers for alternative assets.
The pension fund has previously said it will target real estate globally, and said it would consider managers with a regional focus, which could include North America or Europe.
Growth in Asia’s middle classes will also be a likely catalyst for greater institutional investment.
South Korea and Malaysia in particular are ones to watch, with the latter already making headlines in 2018 with the £1.6bn Battersea Power Station, SW8, deal.
Revaluing sterling
Overseas investors saw an opportunity to invest in the UK when the value of the pound dropped following the EU referendum – one of the major reasons volumes reached a record level last year despite the political uncertainty.
However, the pound’s value against the dollar is once again at a near pre-referendum level, at $1.42.
That could mean a slowdown among some of the more opportunistic investors.
Cann said: “We may see some slowing in certain geographies. The dollar at pre-Brexit referendum levels is perhaps causing some of that capital to rethink their strategies. The resurgent strength of sterling has probably caught them a little bit by surprise.”
However, he added that CBRE is tracking about £35bn-£40bn of equity that is still targeting London alone.
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