Chinese money keeps London real estate 'overpriced'

Chinese money keeps London real estate 'overpriced'

The London commercial property market has continued to heat up despite Brexit, with over 70 per cent of real estate professionals believing it is overpriced.

An influx of international capital due to the weakness of Sterling has continued to support the London market, defying predictions of an exodus from the City, according to law firm CMS UK.

Meanwhile, the time zone, market transparency and the UK legal system mean London remains an attractive destination for international investors.

Some 75 per cent of all office transactions in the first quarter of 2017 involved overseas buyers, 90 per cent of whom were Chinese investors.

In addition, 80 per cent of respondents believe Asian investment will continue to increase over the next two years - up from 66 per cent in 2016.

Confidence in UK real estate has risen since the EU referendum, with 29 per cent of real estate professionals now feeling optimistic about the sector – up from just 14 per cent shortly before the Brexit vote.

But with the final outcome of the Brexit process still in doubt, the proportion of respondents saying the capital would attract Western European investment dropped from 22 per cent to 11 per cent.

Research was conducted by FTI Consulting on behalf of CMS in July 2017 with 350 real estate investors, developers and agents, controlling combined assets of more than £400bn.

The London residential market has experienced a significant slowdown since the Brexit vote and grew at an annual rate of just 0.7 per cent in August, according to latest Your Move price index.

But the overall picture masks widespread regional variation, with prices dropping sharply in expensive central London boroughs and rising in more affordable parts of the capital.

Ciaran Carvalho, head of real estate at CMS UK, said: “Brexit has raised the threat of certain companies moving all or part of their workforce into the Eurozone after the UK formally breaks its ties with Europe. 

“The pressure is particularly acute in financial services. In light of this, many European cities are positioning themselves to benefit and whilst this is no time for complacency, so far there is still no real evidence that they are threatening London as a major international marketplace and an important global city.”

Andy Elley, head of commercial at Kent-based Mortgage for Business, commented: "Enquiries for commercial finance on London property remain steady. However, in our experience the surveyors are being very cautious and we've seen valuations come in at 10-15 per cent lower than anticipated, so yes, I would say there is an element of over-pricing. This is not so much a sticking point for new investment but for those looking to remortgage and raise finance, it is problematic.

"We've seen a rise in enquiries for finance on warehouses across the UK. These properties seem to be growing in number. They command solid rents, helped by changing shopping habits, particularly the rise in internet shopping and out of town retail, both of which require the support of strategically placed distribution centres."