MIPIM: More than EUR 60 bn of equity targeting UK property: JLL

Jones Lang LaSalle estimates that in excess of £52 bn (EUR 60 bn) of equity is currently targeting the UK direct commercial real estate market; and that over 80% of this equity is focused on central London, predominantly offices. Jones Lang LaSalle also predicts that in 2011 Asian capital will be the dominant overseas purchaser in central London.

Chris Brett, director and Head of Jones Lang LaSalle’s London-based International Desk commented: 'We expect investors to move further into ‘riskier’ style transactions such as short income and development opportunities as occupational markets improve. As 2011 progresses, demand will grow and London will witness capital sources from mainland China, Indonesia, Thailand and Taiwan, in addition to the Hong Kong, Singapore, Malaysian and Korean investors already prevalent in London.'

Transactional volumes in the central London office market in 2010 were up by 34% on 2009, producing an annual turnover of in excess of £10 bn. This increase in volumes was driven by the requirement, often from overseas equity, for risk free opportunities, long-dated income, prime locations and trophy assets, all of which resulted in intensified competition for assets and significant yield compression.

In 2010 investment in offices in London’s West End reached £5.02 bn, a 77% increase on 2009 levels. Volumes were dominated by foreign investment which accounted for 62% (£3.3 bn) of the total, with UK vendors accounting for 59% of assets sold. A similar pattern emerged in the City of London with total volumes of £5 bn of which £3.4 bn (68%) was from overseas; overall 63% of Central London office transactions in 2010 were acquired by overseas investors. As many as 45 different nationalities have been regularly inspecting opportunities in London's commercial real estate market; from Asia to the US, sovereign wealth funds to high net worth individuals and property companies to pension funds.

Looking ahead to the rest of the year, Chris Brett said: 'During the remainder of 2011 we anticipate that overseas demand for commercial property in London will remain high for a number of reasons: rising rents, selective bank lending, low interest rates, overseas political unrest and weak sterling. London was the largest commercial property investment market in 2010 and looks set to lead the world again in 2011. The key difference between this year and last is that we believe that Asia Pacific investors, diversifying outside of their local markets, but also keen to explore development, short income, riskier cashflows as well as long income vanilla transactions, will overtake the Middle East as largest investor base.'