Investing in
London property
The guide for overseas investors
Investing in
London property
The London property market is widely
considered to be a safe haven investment
in times of economic and political unrest.
While deciding to invest in London may be
an easy decision, the regulations that govern
the purchasing process can be complicated
for overseas investors.
At Estate Office, our clients benefit from:
• Strategic expertise
• In-depth market knowledge
• Personal, dedicated service
• Full service agency
Estate Office Property
Consultants was founded in
1983, and since then we have
gained invaluable insight and
expertise into the London
and UK investment and
development property market.
Estate Office Property Consultants advises
overseas clients in all aspects of property
acquisition and disposal. In the last year,
we’ve transacted on over £200 million worth
of property, proving ourselves to be at the
forefront of the London market.
London Property Investment & Development Specialists | Estate Office | 1
Market update:
residential
The Nationwide House Price Index has revealed
that average London house prices grew 0.9%
over Q3 2014, representing a softening of
the annual price growth to 21%.
Greater emphasis, activity, and price growth is
being seen outside of London’s prime markets.
Prime London prices appear to have reached
a plateau, while price growth in the eastern
suburbs has outperformed the more expensive
boroughs over the past year.
House price growth across Prime London
(Source: Savills Residential Property Focus Q3 2014)
Prime
Central
Q3 2014 London
The Crossrail effect is also significant.
Knight Frank has found that areas
within a 10 minute walk of the stations
are outperforming not only average
London price growth, but Prime
Central London price growth.
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Prime
NW
London
Prime
SW
London
Prime
N
London
Prime
East
of City
All Prime
London
Average
Q on Q
0.4%
1.2%
0.1%
1.3%
1.9%
0.5%
Year to
Date
3.0%
5.7%
4.6%
12.7%
12.9%
5.4%
Market commentators have speculated that
the price outperformance of the outer London
areas may be explained by residential developers
casting their eyes further afield in order to gain
higher margins. However, our view is that Central
London properties will hold their values and that
demand from local and international markets will
continue to be strong.
London Property Investment & Development Specialists | Estate Office | 3
Market update:
commercial
City
Camden
King’s Cross
Noho
Mayfair
St James’s
Today, prime office rents in Mayfair
are close to their pre-crash peaks at
c. £115-£130/ft2. Prime retail rents on
Bond Street are showing no signs of
slowing at c. £1,300/ft2 ZA. Prime City
office rents are at c. £60-£70/ft2.
Rent rises mean that many tenants who
agreed soft deals in 2010 and 2011 are
facing expensive reviews and may be
looking for more affordable sub-markets
in Central London.
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Green
Park
Belgravia/
Knightsbridge
Camden
10 Portman Square W1
Submarket: North of Oxford Street
Sector: Offices
Tenant: ArrowGrass
Area: 18,546ft2 Rent: £92.50/ft2
Zig Zag, 70 Victoria Street SW1
Submarket: Victoria Sector: Offices
Tenant: Jupiter Asset Management
Area: 56,357ft2 Rent: £84.00/ft2
Canary
Wharf
Waterloo
Victoria
Vauxhall
Battersea
Mayfair Place,
50 Berkeley Street W1
Submarket: Mayfair Sector: Offices
Tenant: Salamanca Group
Area: 11,060ft2 Rent: £110.00/ft2
Wapping
London
Bridge
Docklands
Fulham
Recent Key Rental Deals
City
Soho Covent
Garden
Hyde Park
Kensington
City eastern fringe
Midtown
Paddington
Throughout the downturn, demand for
quality commercial accommodation in
Central London remained steady. Rents fell,
but space was never in abundant supply.
Shoreditch
Bloomsbury
North of
Oxford St
Hammersmith
West End
Clerkenwell
Marylebone
The Central London commercial market
is extremely strong, driven initially by
overseas investors looking for a safe
haven and subsequently by occupier
demand and reduced supply as London’s
economy emerges out of the financial
crisis. These factors have shaped market
activity over the last 24 months.
Canary Wharf
Euston
Regent’s Park
The Shard SE1
Submarket: City Sector: Offices
Tenant: Campari
Area: 5,000ft2 Rent: £65.00/ft2
Commercial Development
Restricted lending has resulted in significantly
fewer schemes being delivered in London
over the last 5 years. This year has seen a
significant change.
Central London Offices – Key facts (Source: GVA)
Carmelite Riverside,
50 Victoria Embankment EC4
Submarket: City Sector: Offices
Tenant: Gibson Dunn & Crutcher
Area: 39,084ft2 Rent: £57.50/ft2
Offices
Rental
Growth
2014
Vacancy
Rate
Under
Prime
Construction Rents
West End
7.3%
3.6%
4.5m ft2
City
7.1%
6.1%
7.8m ft2
£60-70/ft2
Docklands
0%
6.5%
0
c. £37.50/ft2
12 New Bond Street W1
Submarket: Mayfair Sector: Retail
Tenant: Chopard Jeweller
Rent: £1,300/ft2 ZA
In the West End in 2014, development in both
refurbishment and new-build is up by 46% to
2.8m ft2 as compared to 2013. There is also
a change of emphasis from refurbishment
(41% in 2013) to new-build (70% in 2014).
160 New Bond Street W1
Submarket: Mayfair Sector: Retail
Tenant: Christian Dior
Rent: £1,300/ft2 ZA
£115-130/ft2
[Source: GVA]
London Property Investment & Development Specialists | Estate Office | 5
Overseas
residential investment
Overseas investors are key players in the prime
residential market. Research by specialists such
as Savills shows that 32% of Prime London
purchases are by overseas buyers. Knight Frank
puts the figure at 49% for Prime Central
London and 20% for Inner London.
Asian developers have also begun to team up
with local partners to bring forward major
schemes. Knight Dragon has purchased the
whole of Greenwich Peninsula, Greenland has
bought the Ram Brewery site in Wandsworth
and Dalian Wanda has acquired One Nine Elms/
Market Towers.
International ownership/cross border investment
by asset class (Source: Savills Research)
Asset Class
Domestic
Market Share
Cross-Border
Market Share
All London Mainstream Residential
93%
7%
Prime London Residential
68%
32%
London Offices
43%
57%
London Retail Property
57%
43%
London Hotels
46%
54%
Residential
JLL found that 85% of London residential
property purchased by Asian buyers is for
rental, while Savills research reveals the
majority of overseas purchasers buying
as their main residence.
New build residential
In recent years, developers have been reliant on
overseas off-plan capital to bring developments
forward to construction. However, we feel
that oversupply has made selling exclusively
off-plan a thing of the past. Future offerings
should represent good value for money and be
backed up with a solid investment and property
management plan.
The British Property
Federation reports that
overseas investors account
for almost a third of all Buy
To Let purchases in London.
Our own experience shows that demand is
focused on prime areas such as Knightsbridge,
Mayfair, and St John’s Wood. The majority of
our clients purchase for investment, but some
are buying trophy homes in the capital.
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London Property Investment & Development Specialists | Estate Office | 7
Global Prime Retail Rents
Overseas investors benefit from a global perspective
and this has been another part of the investment
story over the last 24-36 months, in particular for
prime retail property. Despite the high growth rates,
prime retail rents and yields are very attractive in
comparison with other global centres:
Overseas
commercial
investment
Global Prime Retail Rents (Source: DTZ)
The UK’s political stability and
mature property market with
landlord friendly commercial
leases have added to Central
London’s appeal to investors.
Office Investment
Overseas investment is dominating the
market for large lot sizes. Cushman &
Wakefield’s research shows the average
UK office purchaser transaction is
around £32.9 million while overseas
transactions average £174.5 million.
Retail Investment
In the retail sector, the last 24
months has seen an easier lending
environment and increasing
confidence, creating a deeper market
place with increased competition for
high-quality assets. Overseas investors
are competing fiercely for properties
on Regent Street, Oxford Street and
Bond Street.
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Market
Overall Prime
Retail Rent (US$/ft2)
Hong Kong
$4,334
New York
$3,300
Paris
$1,450
London (Bond Street)
$1,365
Recent Key Investment Deals
Overseas investors are
the largest owners of
UK commercial property
according to the Property
Industry Alliance.
They own 24% of all
commercial property in
the UK and 75% of those
properties are in London.
97 New Bond Street
Sector: Retail Tenant: RBS
Price: £18.75m NIY: 2.3%
Price/ft2: £1,881 Purchaser:
Wittington Investments
Date: July 14
1-5 New Bond Street
Sector: Retail Tenant:
Patek Philippe & Georg Jensen
Price: £112m NIY: 2.12%
Price/ft2: £3,848
Purchaser: Meyer Bergman
Date: May 14
62.2% of the Pollen Estate
(Mayfair)
Sector: Office/Retail/Residential
Tenant: Multi-let
Price: £381m NIY: 2.47%
Price/ft2: £815
Purchaser: Norges Bank
Investment & The Crown Date: Aug 14
15 Sackville Street
Sector: Office/Residential
Tenant: Multi-let
Price: £83.06m NIY: 3.90%
Price/ft2: £2,159
Purchaser: Private Middle
Eastern investor
Date: Sept 14
280 High Holborn
Sector: Office/Retail
Tenant: Multi-let
Price: £86.50 m NIY: 4.30%
Price/ft2: £1,252 Purchaser:
Private Middle Eastern investor
Date: Sept 14
125 Old Broad Street
Sector: Office
Tenant: Multi-let
Price: £320m NIY: 4.58%
Price/ft2: £3,848
Purchaser: Meyer Bergman
Date: May 14
London Property Investment & Development Specialists | Estate Office | 9
Why invest
in London?
London is a great city to work in, and a great
place to live. It continues to be a place where
people from all over the world are able to prosper.
What has always been constant about London
real estate is its liquidity and the opportunity
to produce safe and secure income.
London has long
been a safe haven for
wealth, and financial
and geopolitical
risk globally has
spurred international
investment.
• Benign and stable political environment
broadly supportive of inward investment
• Lack of legal restrictions on property ownership
by overseas parties
• UK economy not perceived to be subject to the
recent Euro-zone related risks
• Housing market has a well-publicised history
of long term price growth
• London is a global financial centre and the
head of the UK economy
• Many overseas investors have either lived in
London or have friends/relatives working here
• High-quality educational institutions and
thriving cultural scene
• Safe place to do business
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We have a longstanding track record
of working with overseas investors to
successfully source, acquire, and dispose
of both residential and commercial
properties in London.
Case
studies
Cheyne Walk, Chelsea, Central London
A stunning Freehold property in a prime
Chelsea riverside location arranged as
12 high specification, self-contained luxury
apartments and associated parking. This
residential investment property was acquired
from administrators in 2009 for £27 million
for overseas investors. The current value
of the property is c. £40 million.
Greek Street, Soho, Central London
Freehold leisure investment in the heart of
London’s Soho district comprising a nightclub
with a valuable late night licence and 2 flats
on the upper parts. Acquired for overseas
investors in 2013 for £5.1 million with an
income of £286,000 per annum, the current
value is c. £7 million.
Hilton Hotel Portfolio, London & Regional UK
This transaction took place over 2010-2012
and was led by the Hilton Bayswater in Central
London, a prominently situated hotel opposite
Hyde Park that was acquired from a bank for
circa £20 million, representing a Net Initial
Yield of 7.2%. On the back of this purchase,
we subsequently acquired a further 4 UK hotels
from the bank for overseas investors for circa
£68,500,000. The current value is approximately
in excess of £140 million.
Long Acre, Covent Garden, Central London
The French Connection store at 99-103
Long Acre in London’s Covent Garden retail
district. Against an asking price of offers in
excess of £15,000,000, the virtual Freehold
was acquired for overseas investors in 2013
for £16,500,000 reflecting a Net Initial Yield
of 4.08%. Current value c. £19 million.
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London Property Investment & Development Specialists | Estate Office | 13
London Residential Markets 5 Year Forecast Value
Looking
to the future
Prime London
(Savills)
Prime London
with full mansion
tax (Savills)
2014
2015
2016
2017
2018
Total
Growth
2014-18
3.0%
-0.5% 7.0%
5.5%
4.5%
19.5%
–
-5.0% 2.0%
7.5%
5.5%
10.0%*
Prime Central
London
(Knight Frank)
6.7%
0.0%
4.5%
5.0%
5.0%
21.2%
Prime Outer
London
(Knight Frank)
10.5% 3.0%
5.5%
5.0%
5.0%
29.0%
Mainstream
London (Savills)
15.0% 0.0%
3.0%
3.0%
2.0%
23.0%
Mainstream
London
(Knight Frank)
15.4% 3.5%
4.0%
5.0%
5.5%
33.4%
Central London
(JLL)
8.0%
4.0%
5.0%
5.5%
5.5%
28.0%
* (2015-2018)
• Prices are forecast to continue to be strong in
the commercial sector due to the imbalance of
supply and demand
• Residential prices in London are likely to plateau in
2015 due to uncertainty over the upcoming general
election, followed by a stabilisation of price growth
due to the historically strong nature of the market
• Occupational demand continues to strengthen and the
low levels of good quality supply will lead to increased
commercial development
• Rental growth forecasts for central London reflect this
dynamic and the strong levels of demand from purchasers in
both the UK and from overseas will continue. We therefore expect
commercial property yields to remain under downward pressure
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• Knight Frank is forecasting Central London
office rental prices to grow 16.3% in the next
5 years along with an expected fall in the
already low vacancy rates
• Strong rental growth forecasts are adding
further confidence to investors and increasing
downward pressure on yields
Commercial Rental Growth Forecasts (Source: REFL, GVA)
2014
2015
2016
2017
2018
Total
Growth
2014-18
West End Offices 3.0%
0.0%
7.0%
5.5%
4.5%
19.5%
6.7%
3.0%
2.0%
7.5%
5.5%
21.2%
West End Retail
London Property Investment & Development Specialists | Estate Office | 15
A Capital
to invest in
The UK remains a safe haven for international
investors looking to find a secure place for their
money. We will continue to explore good Central
London secondary areas for our overseas clients,
specifically along Crossrail.
Crossrail, the ‘game-changer’
Developers along the line are responding to expected
demand with more than 3 million ft2 of office, retail and
residential accommodation planned for the spaces above
the Central London stations alone. Knight Frank forecasts
that in areas within a 10 minute walk of a Crossrail
station, there will be a total uplift of around 29-36%
in residential prices expected by the end of 2018.
Overseas Investment
Two of the major impacts on future overseas
investment in London residential property are
the possible introduction of a mansion tax and
the Capital Gains Tax initiative which could mean
that CGT will have to be paid by overseas owners
if they sell after April 2015.
Economy and politics
London is forecast to become the UK’s first megacity
(population over 10 million) by 2025, which will
further increase demand for real estate and improved
infrastructure. There is uncertainty based around the
2015 general election, interest rates, and house prices.
However, market dynamics are widely believed to become
more sustainable and balanced from 2016 onwards, and
the healthy property industry is likely to get back to its
traditional positivity following the election.
In the development market, house builders are
starting to launch new-build residential schemes
jointly or fully in the UK, instead of exclusively
overseas. Development finance is beginning
to loosen and some of the larger, more stable
players are starting to hold back units to allow
for upward pricing adjustments as the build
programme progresses. However, the next year
is likely to see more overseas developer interest,
particularly from China. Overseas demand growth
for commercial property is also expected to
continue as the economy improves.
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London Property Investment & Development Specialists | Estate Office | 17
How we
can help
Estate Office Property Consultants has
considerable expertise in advising overseas
clients in all aspects of property acquisition
and disposal. From the point of introduction,
our clients receive exceptional personal
service, including:
• In-depth discussion of property requirements
• Details of suitable properties and introduction
to off-market opportunities
• Support through the entire property transaction
• Property management and letting services for
both residential and commercial properties
• Resale process, with the goal of obtaining the
best possible price
• Overseas exhibitions of properties during the
disposal process
• Disposal of residential development
properties through forward purchase
Estate Office, along with our panel of recommended
professionals, can provide advice on:
Laws And Regulations
Purchasing Process
Property Investment
• Nature of ownership
• Offer
• Permitted use
• Land Registry
• Exchange
• Rent deposits
• Completion
• Break clauses and rent reviews
• Stamp Duty Land Tax (SDLT)
• Repair and insurance
• 1952 Landlord and Tenant Act
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For further
information
For further information about property investment
and development in London, please contact us:
Estate Office Property Consultants
37-39 Maida Vale, London W9 1TP
+44 (0)207 266 8500
www.estate-office.com
[email protected]
Key Contacts:
Chaim Aziz
Director
[email protected]
Adrian Levy
Director
[email protected]
Nicholas Cowell
Director
[email protected]
Barry Marshall MRICS
Head of Commercial Investment
[email protected]
This information is intended to provide a brief market update for the Central London property market.
The information does not constitute any form of offer, investment advice, or an invitation to invest.
Estate Office Investments Limited makes every reasonable effort to ensure the accuracy and validity of the
information provided herein. However as price indicators, dates, conditions and information are continually
changing, Estate Office Investments Limited reserves the right to change at any time without notice and
makes no warranties or representations as to the accuracy of the information. The information contained
herein is provided with no express or implied warranty and Estate Office Investments Limited accepts no
liability or responsibility for any errors and/or omissions and/or for damages as a result of relying on this
information. This information is not a substitute for detailed advice on specific transactions and should
not be taken as providing legal or investment advice on any of the topics discussed.
20 | Estate Office | London Property Investment & Development Specialists
+44 (0)207 266 8500
www.estate-office.com