London office market a magnet for Asian investors

Asian investors are expected to step up their bets on London’s office property market this year, lured by lower ESG and climate-related risks and good prospects for rent and capital appreciation, according to market consultants.

They are seen doubling their investments to £4.1 billion (HK$42.2 billion), making up 39 per cent of all inbound spending by global investors into the British capital, according to Christine Li, head of research for Asia-Pacific at Knight Frank. That would be an increase from about 25 per cent last year.

“Investors are increasingly looking to invest in locations that have lower climate risk, have prospects for innovation-led growth and have a greater pool of buildings that meet ESG (environmental, social and governance) criteria,” said Shabab Qadar, London research partner at Knight Frank.

The core London market enjoyed a 7 per cent increase in office rents last year, while capital appreciation was 15 per cent, Qadar said. The British pound has weakened 3.1 per cent this year as the Ukraine war unnerved investors and hurt growth outlook. Since 2019 and before the pandemic, the pound has only lost 1.2 per cent against the US dollar.

Hong Kong investors generated a lot of buzz in the London market last year, despite a 30 per cent slowdown in transaction volumes in the city.

The highlights included Wing Tai Properties’ acquisition of 66 Shoe Lane for £255 million, K&K’s Property Holdings’ purchase of 15 Adam Street for £66 million and Nan Fung Group’s £140 million bet on 99 City Road, according to Savills.

Other big deals included the US$135 million acquisition of Athene Place by a consortium of Hong Kong companies, the US$202 million Kerry Properties’ purchase of Cassini House, and New World Development’s US$176 million outlay on 68 King William Street, Knight Frank said.

This year, Singapore is seen contributing £1 billion of inflows into the London office market, up from £400 million last year, according to Li. Investors from Greater China were projected to plough in £1.5 billion versus £1 billion in 2021, she estimated.

Early signs suggest the flow will easily surpass last year’s transaction volumes even before midyear, according to Emma Steele, director at Savills’s central London and global cross border investment team.

“So far this year, the West End has enjoyed a record transaction volume for January,” she said. “Savills is tracking a total of £6.71 billion of stock under offer across London, which coupled with the … £2 billion of already exchanged stock, takes us to well over 50 per cent of the total 2021 volume.”

Over the long term, foreign capital into London’s prime office market will only keep growing, based on Knight Frank’s forecasts. The city could lure £60 billion over the next five years, the highest five-year total in two decades, it added.