Weak pound sees overseas investors pile into UK real estate – a resilient residential market

Weak pound sees overseas investors pile into UK real estate

Property Week, 5 August 2016 | By Richard WilliamsSamuel Horti

Foreign investors have continued their advances into UK commercial real estate, taking advantage of the pound’s weakness to acquire properties across multiple sectors and regions.

Source: Archello

Prudential’s City of London headquarters at 12 Arthur Street

Middle Eastern investors have been among the most active buyers, striking two deals this week – one in the City of London and the other in Telford.

A German fund and an Indian-backed investor also bought properties, providing further evidence that overseas money is breathing life into an otherwise sluggish market.

The biggest single deal was the acquisition of insurance giant Prudential’s City of London headquarters at 12 Arthur Street (pictured) for around £80m by the Oman state oil fund, represented by US private equity firm CIT Group.

Owner-occupier Prudential has offloaded the 105,000 sq ft office building in an off-market deal three years after buying it for £70m from Irish investor Shieldpoint.

Details on the lease signed by the Pru, which sub-leases part of the building to Credo Business Consulting and AM Best, were not revealed.

The news comes a week after Property Week reported that two prime City of London offices were close to being bought by separate overseas buyers.

Private Middle Eastern investors exchanged on a deal for 5 King William Street for around £90m, and a Singaporean investor was under offer to buy DLA Piper’s new City headquarters at 160 Aldersgate Street for around £175m.

Scottish surge

The Brexit effect was also felt in Scotland, where German institutional investor TRIUVA is under offer to buy Waverley Gate, one of Edinburgh’s largest office buildings, for more than £60m after owners M&G failed to reach an agreement on price with TH Real Estate.

As Property Week reported last week, TH Real Estate had agreed to buy the 217,000 sq ft asset from M&G before the EU referendum in a deal worth more than £65m.

However, the deal had a Brexit clause and fell through after the vote.

The deal with TRIUVA demonstrates the firm’s continued desire to invest in the Scottish office market, having acquired Quartermile 4 from M&G for £68.5m in one of Scotland’s biggest deals in the first half of this year.

A resilient residential market across the UK

According to Tim Downing, Director at Pygott & Crone, with the budget, stamp duty and a change of prime minister, as well as the impact of Brexit, it’s no wonder poorer areas of the country are anxious about regeneration funding.

We’re also seeing homeowners, housebuilders and landlords questioning what the future holds for the property market following a near-£40,000 reduction in the average London house price post referendum.

Despite the future for regeneration funding remaining uncertain, the good news is that the regional property market remains optimistic.

The first quarter saw changes to stamp duty on buy-to-let purchases along with changes to legislation relating to multiple occupancy, both of which had an impact on local property markets. This was closely followed by the referendum.

The result was a significant drop in the number of investors registering to purchase buy-to-let properties.

However, this was entirely expected following the frenzy relating to the March stamp duty change. While general applicant/buyer registration and property viewings also dipped slightly, the numbers of offers being made were actually up and sales increased.

Plus, in the East Midlands and Lincolnshire, we’ve seen the average property price increase by 4% on the previous quarter, compared with the national average of just over 1%. Demand is clearly present through holding sale prices and the healthy 300-plus potential buyers we see registering each week.

Locations such as Lincolnshire remain fantastic options for first-time buyers due to property being available sub-£100,000 and mortgage rates staying low.

They have the benefit of realistic house prices and the best mortgage rates we can remember. Again, we only see rents rising in the future; a good fixed-rate mortgage could provide more security.

Locations such as Lincolnshire remain fantastic options for first-time buyers – Source: Richard Croft/Creative Commons

While investments have slowed in the second quarter, mainly due to strong investment prior to stamp duty changes, we do believe that they will return in the second half as property continues to be a good medium-term investment and rental demand steadily grows.

The East Midlands doesn’t have the same highs and lows as London; while the market and transaction levels may be slow, experts are still predicting positive growth in property values over the next five years. If property comes to market accurately priced and well presented, while being marketed to the widest possible audience with great mortgage rates, prices achieved and sales will remain consistently strong.