The Real Deal New York

Chinese buyers in London are leaving institutional investors in the dust

Investors made around $8B of deals so far this year
November 22, 2017 09:00AM

The London skyline with the Walkie Talkie, Gherkin and the Cheese Grater buildings.

Asian investors looking to buy trophy assets have set their sights on London, where they’re outbidding institutional investors to scoop up prime office buildings.

Nearly half of the $16.1 billion spent on office properties during the first three quarters of the year came from Chinese and Hong Kong investors, according to Knight Frank. That compares to just 7 percent in 2015.

London is a two-tier market right now—the Asian investors and everybody else,” Joe Valente, head of research and strategy of European real estate at J.P. Morgan Asset Management, told the Wall Street Journal.

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As a point of comparison, U.K. institutional investors bought just $1.16 billion dollars of central London real estate so far this year, compared to $3.8 billion during the same period in 2015.

Amid Chinese capital controls, private investors have replaced Chinese institutional investors. Private investors often use the Hong Kong stock exchange and other methods to transfer money. One large purchase by a family office is London’s Walkie Talkie building, which Hong Kong-based Lee Kum Kee Group purchased for $1.7 billion. CC Land Holdings Ltd., backed by a Hong Kong property owner, bought the Leadenhall Building for $1.5 billion.

Despite uncertainty surrounding Brexit, “the political haven that the U.K. offers means they will pay a little more for these assets than domestic investors would do,” said Hayley Scott of financial services firm Investec.

Asian investors, though, aren’t tapping U.K. banks for financing. As a result, the volume of new loans in the U.K. dropped 18 percent year over year during the first half of 2017, according to a report by De Montfort University. [WSJ]E.B. Solomont