BNP Paribas Real Estate’s analysis of Q1 2024 has revealed that investment activity from US-based buyers into UK commercial real estate has risen 64% year-on-year, with London recording its highest share versus the rest of the UK in almost a decade.
The advisor says US capital is swooping with total UK inward investment from US-based buyers rising from £1.9 bn (€2.2 bn) in Q1 2023 to £3 bn in Q1 2024.
That is the biggest quarterly swing in the post-pandemic era.
Investment activity by US-based buyers into the UK in this period has now surpassed the 5 and 10-year quarterly averages of £2.8 bn and £2.6bn respectively.
But the activity is coming off a low base. Total UK inward investment from US-based buyers closed at £7.6 bn in 2023, which was the lowest annual recorded total since 2018 at £6 bn. Early activity suggests the UK is on track to exceed this in 2024.
Charlie Tattersall, senior associate director, capital markets research at BNP Paribas Real Estate, said: ‘The US CRE market continues to face some turbulence in the form of foreclosures, tight financial conditions and a slow pace of return of staff to office spaces.’
At the same time, geopolitical instability and stronger-than-expected economic growth relative to Europe has strengthened the dollar and widened the spread between US and European debt costs. As a result, capital is increasingly being driven towards markets such as central London, where leasing fundamentals are more attractive and the currency effect more favourable.’
Simon Williams, head of national markets, added: ‘London and much of the UK may now offer the value correction narrative which supports opportunistic and value-add led investment plays from US capital. As interest rates begin to come down materially in the coming months and liquidity gradually improves, we anticipate this trend to persist as the real estate recovery continues to play out into the second part of this year and beyond.’
Of the £3 bn invested in Q1 2024, London secured £1.9 bn, which is the highest total recorded since Q4 2015 (£2.7 bn), and is a 63% share of the total UK figure. It the highest share London has secured versus the rest of the UK since Q1 2019 where it achieved a 78% split at £1.6 bn of the total UK figure which stood at £6.5 bn.
London hotel and office transactions dominated the £1.9bn Q1 2024 total, at £871m and £575m respectively, backed by a series of deals including:
o BT Group’s £275 mln sale of the BT Tower for hotel redevelopment to MCR
o Langham Estate’s £300 mln ixed-use portfolio sale to Oval Real Estate and Elliott Management
o Starwood Capital’s acquisition of a £800 mln portfolio of 10 hotels from Edwardian Group
o Ares’ purchase of 25 Charterhouse Square for £43.5 mln and £65 mln for Shaftesbury Capital’s Fitzrovia holdings
Fergus Keane, head of central London capital markets, explained: ‘This positive uplift into this new cycle tells us US capital is firmly back in the market. Recently, in a clear vote of confidence in central London, Blackstone completed on the acquisition of Oxford Properties’ 130-134 New Bond Street for £227 mln, at a 3.5% yield and is reportedly considering other opportunities in the capital. This is possibly the clearest sign so far this year that, despite continuing macroeconomic volatility, London’s pricing and occupational market are compelling enough for investors to begin targeting the commercial real estate sector again.’
On the impact of the US election, Keane continued: ‘In any country, domestic political tension can prompt investors to become more agile with their capital. In the case of the US, this is certainly at play, but there are many more investment levers in the mix. The fundamental attractiveness of the UK real estate market is the key driver here, and the strength of the dollar against the pound, coupled with where the UK is at this point in the cycle, are the more dominant themes at the moment.’
‘Investors are encouraged by the rental growth prospects which will ultimately counteract inflation. In this market, fortune favours the brave and the early movers are the ones who will reap the rewards. There is a lot of bidding going on at the moment, and a significant amount of investment is targeting central London. The second half of the year will be one to watch for deal activity.’
According to the firm’s latest Q1 2024 London office data, City prime rents have increased from £75 to £77.50 per square foot and Mayfair/St James from £150 to £155.
