Last week, in a crowded seminar room, we launched a new research report into the implications of global capital flows into Central London office real estate. The study, commissioned by The City of London Corporation and the City Property Association looks at how global capital has evolved into such a dominant force in Central London and what the implications are for transparency, valuation evidence, trading patterns and development funding.
The office real estate market has always been global but only since 2009 has it opened up to its current extent. Before 2009, in an average year around 45% of deals were acquisitions by overseas money. In the last three years that proportion has grown to 67%. We have never seen such global diversification of investors. We do not think this will change and we do not think it is a bubble: the potential sources of investment out there, from countries both active and inactive, is vast and with a growing and maturing Asian pension fund industry, for instance, is only getting bigger.
There will be implications, the majority of them positive. While domestic investors will be increasingly priced out of the market this may encourage greater interest in areas offering higher returns such as regeneration. There will be increasing global diversification as London further separates from the UK economically. And, most important, global equity will encourage more commercial development enabling London to retain its position as the leading global financial centre.
There are 12 “Why London?” factors which demonstrate London’s competitive positioning. But Fadi Moussalli from our International Capital Group, summed it up better than I could. Seizing the microphone he gave an impassioned account of investors’ criteria – “London offers good investment returns, diversification, safety – and will always be first choice. There may be other markets but investors feel London in their minds and in their hearts”. I expect many agree with him.