Concrete Analysis | Brexit uncertainty draws increased Asian capital inflows into London properties

In the last two years, investment from Asia – and Hong Kong in particular – into commercial real estate in London accelerated at a pace few anticipated. In 2015, investment into London commercial property represented 27 per cent of the total, according to CBRE. In 2016, the figure crept up to 29 per cent, but last year, the proportion increased to a quite incredible 43 per cent.

While always interested in London property, Hong Kong investors historically felt that it was overpriced, particularly when far higher yields – admittedly at greater risk – were available in mainland China. The dramatic fall in sterling prompted by the decision of the British people in 2016 to leave the European Union, combined with existing factors, changed matters dramatically.

In effect, Hong Kong investors were – and remain – able to acquire prestigious commercial properties in London at a discount. The opportunity was too good to turn down. Buyers can protect their wealth in a stable and familiar London, but by improving properties and waiting for sterling to strengthen they can potentially realise highly attractive returns if they want to time their currency play.

There is, of course, the question of whether capital values will be maintained and there are plenty of commentators predicting a dark future for London. As a result, many observing London’s investment market were surprised by the vote of confidence that international investors made in London in the wake of the referendum. While Brexit is far from being a sideshow when looked at from a domestic perspective, some international investors seem to view it as such.

Frankly, nobody predicted that the investment market would be as good as it is now; it is important that it is demand-led. The weight of international investment capital currently chasing London property is coming from sources as varied as superannuation funds, sovereign wealth funds and insurance companies, as well as high net worth individuals seeking stable and secure investment opportunities.

Despite Brexit, when looked at in a global context, central London property still looks like a safe bet. Consider the risks in other markets. The US remains under the unpredictable leadership of President Donald Trump, the Korean Peninsula is more dangerously divided than we have seen in a generation and the Middle East continues to witness conflict on multiple fronts. In pure property terms, Paris and Germany’s leading cities can be attractive but also come with their own risks and idiosyncrasies.

Given the above, the UK leaving a trading block could end up being relatively inconsequential in the long run. The actual stock of investible property in London hasn’t increased by any significant degree compared to the volume of money chasing such assets. Just look at the huge sums paid for the Cheesegrater (£1.15 billion) and the Walkie Talkie (£1.3 billion) since the referendum, two spectacular purchases with capital coming from Hong Kong.