Middle East Investors Target $5.3bn London Commercial Property Spend In 2020

Middle East investors are set to increase commercial real estate investment in London this year, according to Knight Frank.

Investors from the region, led by UAE and Saudi Arabia, are forecast to spend £4.1 billion ($5.3 billion) in the UK capital this year, up by £100 million compared to 2019.

However the total represents a fall from £4.7 billion seen in 2018.

China remains by far the biggest potential investor in London, with £12.7 billion of capital ready to buy assets in 2020, up 25 percent, followed by Singapore.

Overall, London is set for an increase in commercial real estate investment in 2020 as international investors target the capital’s high-yielding office market, following the decisive 2019 UK General Election result.

According to Knight Frank, global investors have increased the total capital targeting London commercial assets to £48.4 billion, a 21 percent rise on 2019 and £2 billion higher than 2018.

However, with just £2.3 billion of buildings for sale, Knight Frank said investors will face strong competition, which is expected to drive values higher in 2020.

Knight Frank’s annual London Report reveals that in 2019 London investment activity fell 15 percent to £13.9 billion, down from £16.8 billion in 2018, as Brexit uncertainty and a shortage of available assets constrained the number of deals.

Nick Braybrook, head of London Capital Markets, said: “Despite the fall in activity, London remained the second largest market for commercial office real estate investment in 2019, topped only by Paris and ahead of New York, Hong Kong and Berlin.

"London’s stability and global status is attracting international investors who see a competitive economy, strong occupier market and high office yields, compared with other global cities. We expect the sheer weight of international demand for London assets to push prices on, and we have already seen an increase in transactions as activity ramps up following the UK General Election result."

Faisal Durrani, head of London Commercial Research, added: “One of London’s underlying strengths is its vibrant labour market, which is reflected in resilient leasing activity. New office development has not been able to keep pace with this demand, and almost half of the space currently under construction is already spoken for. This supply crunch is most significant for those businesses seeking large amounts of space.

“Indeed, the supply shortage is helping to underpin our rental growth projections over the next five years. These show that headline office rents will rise by 15.7 percent in core West End locations such as Mayfair and St James’s by the end of 2024. Elsewhere, we forecast rents in the City core to grow by 20% in the next five years.”