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JLL predicts ongoing interest from Asia Pacific and Middle East investors if sterling continues at a similar rate since referendum
Shanghai, 30 March 2017 - As Theresa May triggers Article 50 to start the process of withdrawing from the EU, the depreciation of the pound has spurred increased investment in the UK from the Asia Pacific and Middle East regions, according to real estate firm JLL.
The depreciation, coupled with a slight drop in capital values, has led UK commercial real estate to be discounted by 16 percent on average to overseas capital relative to pricing since the June 2016 vote, says JLL.
Although currency movements have not had a strong historic correlation with overall international capital inflow into the UK, they are part of the reason why the market has experienced a recent surge in demand from buyers from the Asia Pacific region, headlined by Hong Kong and mainland China.
"We continue to see the emergence of Chinese capital globally. Chinese investors now rank just behind US as the second largest source of global cross border capital and we expect them to have an increasing influence on the UK market," says Alistair Meadows, Head of UK Capital Markets at JLL. "Many investors from China and the wider Asia Pacific region are attracted to the depth, liquidity and familiarity of the UK market and come seeking diversification and safe haven forms of investment."
Stuart Crow, Head of Asia Pacific Capital Markets, says: "Private investors have responded to the depreciation quickly and, as a result, they have become a more important driver of market sentiment and pricing. Despite the triggering of Article 50, as 2017 progresses we expect global funds and institutions to return their focus to the UK, in response to relatively attractive pricing and expected resilience among corporate occupiers. Speaking to our institutional clients in this region, many of them are actively looking for opportunities in London."
Based on JLL forecasts and projections on currency by Oxford Economics, Chinese cross-border purchasers may enjoy total returns of five to 10 per cent in London office properties this year, after adjusting for expected currency movements. Singapore and Hong Kong investors will likely enjoy a similar rate of returns.
Overall, overseas investors accounted for 48 per cent of transactional activity within the UK market in 2015 and a slightly higher 51 per cent in 2016, with the increase likely to be partly due to the currency movement. Asia Pacific and European (ex. UK) based investors recorded a surge of investment, with the Asia Pacific share rising from 17 per cent to 28 per cent, and Europe from 14 per cent to 23 per cent.
In contrast, investment inflows from the Americas (primarily the US) fell from 32 per cent of total overseas investment into the UK to 17 per cent in 2016, with the share of global funds (where the ultimate source of capital is split across multiple countries) also falling.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, www.jll.com.
JLL has over 50 years of experience in Asia Pacific, with 36,000 employees operating in 94 offices in 16 countries across the region. The firm won the ‘World’s Best’ and ‘Best in Asia Pacific’ International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the fifth consecutive year by Real Capital Analytics. www.jll.com/asiapacific
In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country. www.joneslanglasalle.com.cn
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