UK Commercial Property Attracting Global Interest

London's Famous Gherkin

London’s Famous Gherkin

The stable returns and wonderful yield profile of the commercial property in the United Kingdom is now drawing interest from lots of investors. Volumes of investment within the asset class went up to £58 billion, an increase of 49% by 30th June, 2014. Of this capital flow, about 40% was from overseas.

Strengthening economy

The economic growth of the UK is strengthening and the IMF (International Monetary Fund) has already predicted it to be 2014’s fastest growing economy due to significant political stability, a capital city still the logistical centre and a global financial nucleus plus an enhanced employment. These have made UK to attract a lot of overseas investors. The maturity, liquidity, depth and breadth of the commercial property segment have also continued to boost the case for investment.

Investing regionally

Investors outside the UK have been very cautious abut investing in the areas surrounding London and even a little more, the South East. In fact, about 15% percent of the investment from the international community within the asset class went into the acquisition of regional properties since around 2009.

Concentrated world investment

Foreign investment has continued to remain concentrated in the English Capital, London, especially the office market of Central London. In the first six months of 2014, the Far East and the United States were top overseas investments within the commercial property market of the United Kingdom. Within the same first half of the year, London continued to remain as the chief global city of institutional investment from China after £1.4 billion was injected into the asset class.

Growing alternative assets demand

Due to yield compression, rising need, limited supply and competitive pricing demand has made the search for assets to largely move far from London and even the South East. As the foreign investment entering the United Kingdom regional property went up by twenty percent, within the first six months of 2014, traditional asset buyers did not shy away but became innovative.   They changed tact and sought alternative assets, whose demand started registering a higher demand as well, such as student housing, hotels and private healthcare.

Such specialist assets have been found to offer a higher yield in contrast with industrial, retail and prime office segments while leases even go beyond two decades giving a good timeframe for a great income. In addition to these, the domestic population in the UK is aging and has without any doubt compelled a hedge fund from Wall Street to invest in over 20 homes for the elderly across Britain in the first months of 2014.

Robust market

The question in many people’s mind is whether investors should have any concern about the huge weight of money from overseas making its way steadily into the market. Most pundits believe that no one should be concerned since the UK economy has been forecasted as improving and healthy and the occupier market is also toughening.

It is also worth noting returns from commercial property will be fortified by capital growth potential and rental income, especially outside London as a result of the capital already having enjoyed great gains. There is also an expectation of rental value taking over as the defining factor of returns within a longer term, especially in the South East and the capital as per the strong occupier need pushing rental value in a number of crucial locations.