The old adage that real estate is a local business is severely tested in the UK as most of the investment activity at the top end of the market is currently dominated by overseas equity buying the choicest big-ticket assets in London.

The old adage that real estate is a local business is severely tested in the UK as most of the investment activity at the top end of the market is currently dominated by overseas equity buying the choicest big-ticket assets in London.

Investors from the Middle East, Asia and North America claimed nine of the 10 largest real estate deals in H1 2015, according to data compiled by PropertyEU Research. The 10 transactions have a combined volume of over €12 bn.

Qatar Investment Authority (QIA) and Canadian-US group Brookfield Property Partners worked together on the top deal and each also figure separately in the top-10.

In the second largest deal, Brookfield agreed to acquire the UK holiday resort Group Center Parcs from funds managed by Blackstone’s private equity and real estate businesses in June. The investment volume was estimated at the time at around £2.4 bn (€3.3 bn).

Qataris
Two deals involved the tiny Gulf state's sovereign wealth fund taking control of some of the shiniest jewels in the London property crown: the largest deal overall in H1 saw QIA and Brookfield take over the Canary Wharf office-led estate, while QIA also picked up Maybourne Hotel Group, owner of luxury hotels Claridges, the Connaught and Berkeley.

These two QIA deals have a combined volume of €5.8 bn, or 37% of the total spend for the top-10. However, as these two deals involved increasing stakes in companies that controlled the assets rather than buying the underlying properties themselves, the scale of Qatar's contribution is not immediately apparent from reports on direct investment in the UK.

For instance, JLL's capital markets H1 update cites a record volume of £30.7 bn of direct UK real estate investment for the first six months of 2015. The performance was up 26% on the year before.

Overseas investors accounted for 45% of the H1 spend, with Qatar tying with Canada at 5%, equating to £1.5 bn (€2 bn) each. The US contribution was far bigger at 15%, with all other overseas groups lumped together at 20%.

While domestic players remained the largest investment group on a national level, accounting for 55% of the overall spend, London is a very different story. It saw £13.8 bn of deals in H1, with £11 bn in Central London alone, involving mainly overseas money.

Buyers become sellers
London's investment boom will keep going strong for the rest of the year at least as huge flows of equity continue to flood into the market. But Savills notes this is triggering a new trend: a wave of mainly Asian investors seeking to make quick profits by divesting some of the largest office buildings they own in the UK capital.

According to an analysis by Cushman & Wakefield, investors that bought properties after the credit crunch that ended in 2009 have cashed in £3.4 bn of London property — pocketing £870 mln in profits —in the past two years alone.

Cash-rich investors seeking returns in an ultra-low interest rate environment have pushed the total value of property markets around the world to record highs, adding to fears that a bubble is forming.

James Beckham, head of Cushman & Wakefield’s central London investment team, said that the burgeoning appetite of prospective buyers made it tempting for property owners to sell up and cash in. The biggest buyers in the city this year have been Canadian and US investors, according to Cushman, investing £6.5 bn between them.

In particular, Malaysian and Korean investors were selling up, Beckham said, but added that there was likely to be 'substantial and continued liquidity from other Asian investors.'

_______________

TOP 10 UK DEALS
H1 2015

_______________

1. Brookfield, QIA close €3.6b acquisition of Canary Wharf
2. Brookfield agrees to acquire €3b UK holiday resort group
3. Qataris lift ownership of iconic London hotels to 100% for €2.2b
4. Canadian pension fund inks €1.5b UK student housing deal
5. Greystar acquires UK student bed portfolio for €847m
6. Middle Eastern investor buys London's Jenga tower
7. Taiwanese insurer bags London's Walbrook Building for €802m
8. LetterOne confirms €732m Pure Student Living deal with Carlyle
9. Patron Capital sells UK petrol station business for €685m
10. British Land completes €1b property exchange with Tesco

* Data compiled by PropertyEU Research on reported investment activity from 1 January to 30 June 2015