Demand from Taiwanese and Chinese investors will push UK property prices higher, and so buyers should be prepared to broaden their investment scope to include industrial and alternative assets, according to experts at a conference in Hong Kong last week.
Panelists at MIPIM Asia said interest will remain strong for London properties, although experienced investors, such as those from Malaysia and Singapore, have been willing to move up the risk curve to consider core-plus assets.
“We are in an era of growth,” said Richard Croft, the managing director of M7 Real Estate, adding that the market currently is awash with liquidity. “American private equity alone has over $100bn trying to find its way into Europe.”
Jeremy Waters, partner at Knight Frank in London, said: “We are constantly seeing new entrants into the market.”
Among the active buyers is China’s Ping An Insurance which is reportedly actively seeking another property after its purchase of the Lloyds Building. Russian buyers have returned and there are “a lot of Chinese buyers coming into the market as first-time buyers, spending $10m and more,” said Waters.
Croft expects growth in London to be led by occupier demand. However, Waters said rising rentals, driven by a new wave of international occupiers such as Twitter, Google and Amazon, would fuel investment demand.
Bruce Dear, head of real estate investments at Eversheds, said the London property market is “white hot” but its office towers are comparatively cheaper than equivalent commercial buildings in Hong Kong or Tokyo.
As prices in London climb, investors have been encouraged to seek alternative opportunities, according to Croft. “There are 60 million Britons who don’t live in London. Outside of London, the rest of UK is still economically quite a good place,” he said.
Dear said investors should seek opportunities by examining the UK’s structural needs and its lack of infrastructure. “Just by looking at a city or a geography, or investing on an asset-by-asset basis – that is a wrong way to do it. I think it is much better to get behind long-term economic trend and then target investment down those lines,” said Dear.
He added that London has a housing shortage and new investors should consider indirect investments in UK house builders or joint ventures with UK institutions to develop both infrastructure and residential properties in London.
Buyers with deep pockets, such as sovereign wealth funds, who need to deploy big sums of money should consider such “big schemes”. He added: “UK PLC needs cash; it is a meeting of two requirements.”
With rising residential and commercial real estate prices, international investors have to be prepared to look at different sectors such as industrial, healthcare and education, Waters added.
Waters said investors buying outside of London are often concerned about liquidity. “If I buy in London, I can exit if I have to. If I am buying in Birmingham or Leeds, am I going to find a market if I want to sell?”
Waters said: “The one thing that is apparent in all markets is that the highest bidder may not necessarily be the one that ends up doing the deal. The track record has shown it is the guys who know what they are doing?”
The panel expected the 2015 general election to temporarily slow transactions, but would not affect market fundamentals.